12 Nov 2020 | 02.06 pm
Review Pension Benefits ‘Glidepath’
Counsel from Declan Maher, Bank of Ireland Life
12 Nov 2020 | 02.06 pm
Pension contributions for self-employed individuals and professionals will be varied this year, as some sectors have been affected financially by the pandemic more than others. This will inevitably lead to a slowdown in pension top-ups by those working in certain sectors.
However, Declan Maher, head of corporate pensions and risk with Bank of Ireland Life, notes that lockdown earlier this year gave many people an insight into what life ‘without’ work looks like, and that planning and appropriate action should be taken now for the stage when life ‘after’ work in retirement becomes a reality.
“Our message to such individuals is to ensure that proactive management and review of their retirement planning journey continues, even if it means a temporary cessation or reduction of pension contributions for 2020,” says Maher.
“This would include a review of their investment strategy and the appropriateness of the level of risk, or lack of, in meeting retirement income expectations, or the consolidation of their pension pots to ensure a complete and holistic overview of their pension benefits in place.”
Maher (pictured) is concerned about the government’s slow progress on introducing pension auto-enrolment for all employees aged between 23 and 60 earning above €20,000 per year. Originally it was proposed that contribution levels would be 6% from employees, 6% from employers and a 2% direct contribution from the state. These contribution levels would be phased in over six years, but last October government signalled that the phase-in period would stretch to ten years.
“The two-thirds of private sector employees who have yet to make adequate provision for their retirement can ill afford to waste another four years doing so,” Maher explains. “Many countries included a bedding-in period when they introduced AE to allow those new to pension savings become accustomed with the concept. However, with the onset of Covid-19 the deferral of these costs to employers over a longer time period will be particularly welcome.”
Employers Should Pay
Maher believes it is good policy that all employers should be compelled to pay into staff pensions. “We can’t ignore the financial pressures that employers are facing given the challenges of Covid-19 and Brexit. However, when employers pay into their staff pensions as a certain percentage of salary, it becomes a really rewarding benefit that significantly improves the financial well-being of employees. It also supports the employer in their talent recruitment and staff retention strategy.
“Bank of Ireland Life would see the matching 6% of salary as the base contribution level for occupational pension schemes that we administer for employers. Other schemes are often designed differently, with varying contribution levels in excess of this, either based on employee service, seniority or both, rewarding loyalty of tenure and career progression.”
The low interest rate environment creates a challenge for pension savers in their trade-off between risk and return. For the majority of pension savers, the strategy of reducing exposure to risk assets as they get closer to retirement makes sense.
However, determining the most appropriate investment strategy before retirement will depend on the plans of pension savers post-retirement — i.e. taking a cash lump sum, purchasing an annuity or transferring to an approved retirement fund.
“There is no ‘one size fits all’ approach,” Maher advises. “Hence the importance to ensure they continue to review their plans, and the investment ‘glidepath’ of their pension benefits, with their financial advisor.”
He adds that more people now working remotely, the provision of digital pension platforms has become more important. Bank of Ireland Life recently launched its MyPension365 group pension digital platform that enables employers and employees to navigate and engage with their company pension plan in a more automated way.
“Since it streamlines pension administration, making it simpler and faster, it will reduce the time employers spend on payroll and member related administration,” says Maher.