In this month’s Construction Magazine, Susan asks if Ireland will finally become wise about pensions in the coming decade.
This year is the beginning of a new decade and a good point to take stock of the last one while looking to the future. In 2010, Apple debuted the iPad. In 2012, we witnessed the London Olympics. In 2014, who could forget Garth Brooksgate 2016, which started with the death of David Bowie and went on to witness global political changes, is seen by many as the worst year of the decade. At home, the last few years of the decade saw important referendums, decent summers, and, in 2018, a few extra days off when we were collectively snowed-in. From an investor’s perspective, it was a good decade. From 1st January 2010 to the beginning of December 2019, the MSCI AC World Index increased by 137.57%, or an annualised performance of 9.12%.
As we look forward, it is difficult to predict what may happen. Upcoming elections in the US and trade tensions between the US and China will continue to cause uncertainty in the equity markets. At home, Brexit will continue to dominate the news cycle, and climate change is what should be at the top of the agenda, but is not. In compiling my top tips for the coming year and decade, I can only focus on what is reasonably certain. You will retire someday You need to crunch the numbers on the cost of your retirement. The internet is useful for this; if your pension provider doesn’t already have a pension calculator, then there are many online. The Pension Authority has one, as do my colleagues in CERS – which is on their website.
If you are mid-way through your working life, you ought to know how much you need to have saved or have yet to save for your retirement. If you are still in the beginning phase, understanding that starting earlier will take the pressure off down the road will be a helpful motivator. You can see from the table (Table 1) the value of saving a monthly amount of €100 will accumulate a much greater fund at age 65 if you start at age 25 compared to starting at age 35 – That is €34,000 to be precise. The monthly premium over the same period (25 – 35) is only €12,000 more over the same 10 years, which means that starting at age 25 instead of waiting until age 35 has a net gain of €22,000. This is due to the 10 years more of extra investment growth.
If you have been diligently contributing to a pension scheme all along, use the pension calculator to estimate the value of your current fund as retirement income. What income are you on track for? How does it measure up against your current lifestyle and retirement goals? If there is a gap, the sooner you know, the sooner you can remedy it.
A Pension-Savvy Nation
In the last decade, the multi-asset fund was the new and improved default fund for the majority of investors. Moving through the next decade, we may see money move into sustainable growth funds. These are funds that aim to provide capital growth by only investing in equities that meet a set of sustainability criteria, such as companies that avoid “the depletion of natural resources in order to maintain an ecological balance”.
In the next decade, the State pension age will increase twice;in 2021 to age 67; and in 2028 to age 68. The Irish Government also plans to implement mandatory pensions for all under their auto-enrolment scheme, which should be up and running by 2022. Employers and employees will have to engage with these changes. In 2029, I hope I find myself writing a piece about how Ireland finally became “pension-savvy” and how the population will be able to embrace retirement with open arms.