But, your pension is potentially one of the largest financial assets you will ever own. More importantly, it could determine the lifestyle you enjoy for 20, 30 or more years after you finish working. That makes it far too important to simply set and forget.
A regular pension review gives you an opportunity to answer the question that really matters: Are you still on track for the retirement you want?
Your life changes – and your pension should too
Think about how much can change over five or ten years. Your salary may have increased. You might have changed jobs, become self-employed, started a business, got married or had children. Perhaps the mortgage is now much smaller, giving you more disposable income. Your expectations for retirement may also be very different from when you first started your pension.
Your pension strategy needs to reflect these changes. For example, an increase in income could provide an opportunity to increase your pension contributions without significantly affecting your current lifestyle. Or perhaps you’ve accumulated several pension funds from previous jobs and are no longer quite sure where everything is invested or how those pensions fit together. A regular review brings everything back into focus.
Are you actually saving enough?
Seeing a sizeable pension fund on a statement can be reassuring. However, the value of your pension today isn’t necessarily the most important number. The more important question is: What income might it provide when you retire?
Retirement could potentially last several decades, so your savings may need to support you for a very long time. Rather than simply targeting an arbitrary pension fund value, think about the retirement lifestyle you actually want. Will your mortgage be repaid? How much will you need for everyday living? Do you want to travel regularly? Would you like to help children or grandchildren financially? Are there hobbies and experiences you want to enjoy?
Once you have an idea of what your desired retirement might cost, you can work backwards and assess whether you’re currently saving enough to achieve it. And if there is a shortfall, discovering it years before retirement gives you much more time to do something about it.
Time can do much of the heavy lifting
One of the biggest advantages in pension planning is time. Money invested today has the opportunity to generate returns, and those returns may themselves generate further returns over time. This compounding effect can make a significant difference over longer periods. It also means that relatively modest changes made earlier in your career can potentially have a much greater impact than larger changes made just before retirement.
This is one of the strongest reasons for reviewing your pension regularly. If adjustments are needed, the earlier you identify them, the more choices you are likely to have.
Is your pension invested in the right place?
How much you contribute is only part of the pension equation. Where your money is invested matters too. Someone with 25 years until retirement will usually have very different considerations from someone planning to retire in three years.
Your attitude towards investment risk, financial circumstances, other assets and retirement plans should all influence your investment strategy. Yet many people remain invested in the same pension fund for years simply because that was the fund originally selected.
A pension review provides an opportunity to look at investment performance, diversification, charges and risk, and to consider whether your current investment strategy remains appropriate for you. Importantly, retirement itself doesn’t necessarily mean the end of your investment timeframe. If your pension needs to provide an income for several decades after you stop working, some of your money may remain invested for many years.
Don’t forget about tax relief
Tax relief remains one of the important benefits of pension funding in Ireland. Subject to Revenue rules, limits and your individual circumstances, pension contributions can qualify for income tax relief. This can significantly reduce the effective cost of putting money aside for retirement. But tax relief shouldn’t be the only reason to contribute to a pension.
The bigger objective is to use some of the income you earn today to help create financial independence in the future. Tax relief simply makes saving towards that goal more efficient.
Will the State Pension be enough?
The State Pension will be an important source of retirement income for many people, but there can be a significant difference between having enough income to meet your basic needs and having enough to maintain the lifestyle you enjoyed while working. Your own pension savings can help bridge that gap.
As people live longer and potentially spend several decades in retirement, building your own retirement resources becomes increasingly important.
Think of your pension review as a financial check-up
A pension review doesn’t mean something needs to change every year. Sometimes the best outcome is confirmation that everything remains on track – you’re contributing enough, your investments remain appropriate and your projected retirement income looks realistic. At other times, a review may identify opportunities to increase contributions, reconsider your investment strategy, make better use of available tax relief or review older pension arrangements.
The important thing is that your pension remains an active part of your overall financial plan rather than something you only start thinking seriously about a few years before retirement. Your retirement could represent a quarter or even a third of your adult life. Taking some time regularly to check that you’re financially preparing for it could be one of the most valuable financial habits you develop.
Key Takeaways
- Don’t set and forget your pension. Your circumstances and retirement goals change, and your pension strategy should evolve with them.
- Focus on the retirement income you need, not simply the size of your pension fund. Your savings may need to support you for several decades.
- Time is one of your greatest advantages. Identifying a shortfall early gives you more opportunities to address it.
- Review both your contributions and your investments. How much you save and where your pension is invested both matter.
- A pension review is a financial check-up. Even when no changes are needed, knowing that you’re still on track can provide valuable peace of mind.
