Pensions are featuring regularly in the media over the last number of years. There has been much written by myself and my colleagues here and across the Irish media about IORPII Directive and the Government Auto Enrolment and this is likely to increase across 2023.
This should hopefully lead to an increase in public awareness about the importance for pensions, but as I polled a number of friends recently who don’t work in Pensions and asked had they engaged with the topic. The answer was mainly “NO! It seems to complicated.”
For those of us in the industry, are pensions too complicated? Maybe, but let me try and uncomplicate the topic. A Pension is defined as a “fixed amount, other than wages, paid at regular intervals to a person, such as a retirement pension or an allowance, annuity, or subsidy.”
So in essence, the word Pension is actually referring to the payment you receive when you retire. However, it has become synonymous with the vehicle into which your money is set aside or ”invested in” in order to provide this payment when you retire.
This adds another layer of complication.
But simply speaking, a pension is (a) setting money aside during your working life to provide income later in life when you retire and (b) using that money as a regular income when you retire.
In the pre-retirement phase, you should be regularly making contributions or “investing” in your pension in order to provide yourself with an adequate income in retirement.
And here’s where it gets complicated, depending on your employment status, you could be investing in an Occupational Pension Scheme, which could be either defined contribution or defined benefit – or, you could be investing in a Personal Pension or PRSA.
It really does appear complicated and the pension industry is working towards streamlining this, especially where some of the options fundamentally do the same thing.
They invest your money for you throughout your working life and give it back to you when you retire. We don’t need so many different options.
Each type of pre-retirement pension has its own set of rules regarding who it is for, when you can retire from it how it calculates your benefits. This makes it a minefield for those not working away as a pension nerd.
They also have different charges. So what is my advice to the construction sector in dealing with Pensions?
Well here are some of my unbiased opinions on this that broadly apply to the majority of people. If you are an employee, and your employer offers you a pension, that will be through an occupational pension scheme. It might be Defined Benefit or more likely it will be Defined Contribution, but that’s outside your control anyway. Don’t think twice. Join. Easy.
If you are an employee, and your employer doesn’t offer you a pension, then they must offer you a PRSA. Invest in this. Your employer has to do the administration for you through payroll.
It will make things easier for you. If you are a self- employed sole trader, then it’s a likely a PRSA. Talk to an independent adviser about which offers the best value for money.
If you are a company owner, you can chose to be in your company pension scheme for ‘Schedule E’ earnings, but there are many other options. Your accountant and/or financial adviser should help you make the best decision for you and your company.
Of course, my entirely biased opinion is this. To uncomplicate pensions, talk to a pension professional for the construction sector, CPAS, who can help anyone in the sector in any type of role, plan for their future.
Contact Susan O’Mara, CPAS Business Development Manager by email [email protected] or by direct dial 01 2234942
