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04th April, 2023
Our pension landscape has seen more changes in the last 18-24 months than we have had had in a decade. Last year the AMRF requirement for retirees was removed and this year has seen the removal of the charge to BIK on employer contributions to Personal Retirement Savings Accounts (PRSAs). There’s a trend towards simplification of pensions, i.e. the removal of many anomalies between pension products which had made pensions traditionally quite difficult for pension savers to understand. While there is always the future possibility of changes in legislation that could impact on pension funding, we are still operating in a favourable environment and pensions remain the most effective way of saving for retirement.
If you’re a business owner with surplus cash on the balance sheet, speak with your adviser about whether you could benefit from the recent changes in PRSA legislation with regard to employer contributions. If you don’t have a pension set up, it goes without saying that you need to make sure your short-term needs are looked after, but after that saving into a pension should be top priority. Importantly, your pension should be invested in a way that it won’t be eroded by inflation, so the investment strategy that you set should aim to generate returns that outpace inflation.
Holders of defined benefit pensions will likely have seen a shift downwards in value in the transfer values being offered to them with the rise in interest rates and government bond yields. On the other hand, there is arguably more value in the market now and a better entry point than for members that transferred a year ago. In making a decision on whether to take a transfer value, it’s important to get into the detail and take into account the wider circumstances e.g. considerations around management and investment of the funds and passing on assets to the next generation among others. At Davy, we have a clear process for helping defined benefit pension holders make the best decision for them and their families.
Another group impacted by the rise in interest rates in recent times is those holding tracker mortgages. Tracker mortgage holders will have benefitted greatly from low interest rates for many years, however they are now seeing their monthly repayments increase significantly. Where there are funds available, it’s important that tracker mortgage holders speak with their advisers about whether to invest this surplus cash or whether to use it to accelerate the repayment of debt. Again, there are a number of factors that will come into play in making such a decision and this is something our advisers and our financial planning team can help with.
On a positive note, the recent rise in interest rates has brought more choice for investors in lower risk, liquid investments. Money market funds and bonds are yielding attractive returns at present relative to cash deposits (on which Irish banks are yet to pass on interest rate increases). If you have surplus cash on deposit, you may wish to speak with your adviser about allocating some of this to higher yielding, but diversified, liquid investments, while ensuring the amount of liquidity held aligns with your overall financial plan.
The most important action you can take is to ensure that you have a financial plan in place that’s aligned with your goals and to stick to that plan. Now could be a good opportunity to re-engage with your adviser to review your plan if your situation has changed or if it’s been some time since your plan was updated. If you don’t already have a financial plan, your adviser and our financial planning team will be happy to work with you to put one in place. Why not request a call today?
WARNING: The information in this article is not a recommendation or investment research. It does not purport to be financial advice and does not take into account the investment objectives, knowledge and experience or financial situation of any particular person. There is no guarantee that a financial or investment plan will meet its objectives. You should speak to your advisor, in the context of your own personal circumstances, prior to making any financial or investment decision