Chapter 1: What is the main topic discussed in this episode?
The Clare Byrne Show on Newstalk. With Aviva Insurance.
I heard the news this morning that the majority of us are just not prepared for retirement. This new survey of workers shows that many of us are really worried that we won't have enough set aside to allow us to fully retire. So here to help us get it all together is MD of DNG Financial Services, Cian Carlin. Good morning, Cian. Good morning, Clare. Are you surprised to hear this at all?
No, not at all.
Chapter 2: Why are most people unprepared for retirement?
It probably confirms what I see day to day and I suppose we had a big moment for pension and retirement planning last year with the rollout of auto enrolment, really the beginning of this year. And what that has done is it's created more participation.
But what it hasn't solved is that whole knowledge gap piece there where people, even when they're paying into a pension, that's not the solution, that's not boxed ticked and there's a little bit more to it.
So do we assume if we are paying anything into a pension that we've done it now, that's it, we've dealt with it?
Yeah, that tends to be the case. And like a good example might be you might work for an employer who pays 5% of your salary into a pension and you might automatically by default also put 5% in and assume, well, that's my retirement planning box ticked.
And that's not necessarily the case is probably the message because that doesn't necessarily cut the mustard in terms of depending what you want your retirement to look like. And what people are assuming, and we see this in that report, is that they might need to work beyond retirement years. They might need to work up to the age of 70.
A lot of people are even taking mortgages up to the age of 70 as well. And I think what's really important to know that is the default amount, the kind of lowest common denominator amount going in, isn't going to allow you to kind of have the type of retirement that you might want. And I see a lot of people really motivated to be retiring early.
So they're talking 60, not 70, but they don't see that that's a possibility for them.
Yeah. And this survey that was done as well shows that a lot of us, when we look at what we have put aside, we look at the pot, like the pension pot, and that might look like a big number. But what we're not looking at is, well, how many years has this got to do me?
Exactly. And I suppose what we try to retrain people into thinking is of their pension as their future employer. OK, so that's it's the it's the employer that's going to pay them when they stop working. And it's probably the employer they'll work for for the longest period of time. Right. Depending on how long we live.
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Chapter 3: What role does auto enrollment play in retirement planning?
to live off and to have my holiday year. My mortgage is gone, but I want to have a nice lifestyle. What what does that what do we need to do to make that happen?
OK, so what we will need is about 50 to 55 percent of our income that we were making in order to to survive and be comfortable. but a lot of people expect their pension to replace 42% of their income.
Yeah, and that actually, 42% surprised me. It was higher than I expected. The average pension pot in retirement in Ireland is €111,000, which would be, I mean, in income terms is a lot less than the 42% that people expect to have when they hit retirement. So yeah, that number was far higher than I expected it was going to be. And yeah, so look, I think that people need to...
probably seriously take a look at, you know, people know they're paying into a pension. They don't know often what life insurance company it's invested with, what fund it's invested in. They don't know how much, they might know the euro amount on the payslip sometimes, but they don't know what percentage of salary is going in.
So really, I suppose what might be useful is to come up with some questions that we need to ask the organisation that we have decided to invest our money with for our pension. So what do we need to know?
I think it's important to understand what are you invested in? So what is the fund that you're invested in? How has it performed? So what type of return has that achieved in the last year, three years, five years? And is that aligned with what that needs to be at for you to achieve your retirement goals.
I think also things like, you know, should I be putting more in and how do I go about doing that? And can you help me with that? And your employer isn't necessarily going to be the person or people that will be able to help
put that in place but they'll generally have an advisor in the background that can step forward and be your one-to-one person that you can work with and ask those questions of and kind of almost expect better you know communication, more regular communication and input.
Because that's probably something that we see a big deficit in employment pension schemes is that there's very little one-to-one staff engagement. And a big feature of that article and report was, you know, a big deficit in terms of and a big kind of worry, financial worry among staff. And it's starting to impact outputs and performance.
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Chapter 4: How does pension contribution affect retirement readiness?
You should get that every year. If you're not, you should definitely command that every year. You should get what's called an annual benefit statement. It'll show you what your current fund value is and what that's projected to look like at normal retirement age. And with that, what you should expect in terms of an income in retirement.
And if that income, retirement income, doesn't look like around 50% of what you're on when you're working, are you saying that you need to increase what you're putting in?
Absolutely. People just simply aren't parting with enough money every month for their future self. And that is a difficult message for a lot of people to hear, where they might be just getting by month to month. And it's quite typical that young families, people maybe in their early to mid-30s, early 40s, starting families, buying homes, their cash is tied up in childcare, mortgage repayments. And
And now more than ever, now more than ever, because it is really hard to make ends meet at the moment.
Absolutely. But the harsh reality of it is this is one of those things that you kind of need to take into your own hands, because if you don't, no one else is going to do it for you. And if you're earning a decent salary, you're not going to want to drop down to state pension and survive off that.
And, you know, so if it's a case that you're not happy with what you see in terms of what your future income looks like in retirement, there's only one person that's really going to move the dial on that. And it probably does take a deep dive and a look at your broader finances to see, can we make the room to make more go in? And it's really tax efficient to do it. You know, think about it.
If you're a higher rate taxpayer, every 100 euro extra that you put in, it only costs you 60 euro. So I'd kind of challenge people to look at their finances and see, you know, I guarantee you that there are people kind of leaking 60 euro unknowingly on things that are adding no meaningful value for them. And You know, even that extra 100 euro can make a big difference over time.
The other way you can slice this is look at what your employer is offering you. And if there is a job move on the cards, then the pension provision at the company you're planning to move to, that's a big, big deal, isn't it?
Yeah, I think people focus on salaries alone when they change job. And, you know, it goes to, well, what pension contributions, what level of debt and service? Is there an income protection scheme or health insurance scheme in place for staff as well? Because they're all meaningful benefits that either put money back in your pocket that you've been paying for. So, yeah, no, absolutely.
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