IS YOUR PENSION WORKING AS HARD AS YOU ARE?
Let me pose a question, what is your pension currently worth? If you don’t know the answer to this don’t worry, you’re not alone. For those who can answer the first question let me ask a second, how is your pension invested and when was the last time you got an update regarding its performance?
If you have been able to answer these two questions you are almost certainly in the minority. The fact is that most pension holders are aware that there is something there working for them but that’s where the interest tails off. Why is this important you might ask, well, let me explain.
The difference between earning 3% per year on an investment and 4% per year may seem trivial, however when this is compounded over multiple years the difference can be stark. From a starting point of €100,000 and allowing for 10 years of growth the difference is c. €13,600, after 20 years the difference grows to €38,500. Differences in return are not only dictated by the level of risk one takes, but we also must look at the cost of the pension. Now let me pose a 3rd question, how much does your pension cost per year. Don’t worry very few other people know that one either.
A further risk - that may not on the surface seem to be obvious - is the risk of leaving your pension in cash. As we have seen the rate of inflation in Ireland has been high for several years now, added to this the banks have been slow to pass on rate increases to deposit holders. As a saver this is bad news, the value of your asset (cash) is staying steady or eroding but the cost of living is increasing.
At Davy we take a hands-on approach to investing, we speak to our clients about the what, the why and the how. We make decisions in conjunction with our clients and give them the opportunity to hold us to account at a detailed annual meeting. We know you as Alyson with the 3 grandkids, Peter with the 4 dogs or Maire who spends all of her spare time on the golf course. To us you are not an account number in an off the shelf solution, we know you as a person, we know how involved you do (or don’t) want to be in the day to day, we ask about your kids, your hobbies and most importantly we look to find a solution that works for you. We will provide you with a detailed financial plan, we will speak to you about how well (or not) you have stuck to your plan. We will talk about the fun things such as what you will spend the money on and the more difficult things such as how are you going to provide for the next generation. We will help take the anxiety out of financial planning and put you back in control. We will provide an easy-to-use portal where you can access all of your important documents, check the value of your portfolio and request information and most importantly at the end of every year we will send you the cost of your pension in both percentage and monetary terms. If we have another Annus horribilis (think 2022) we will be there to talk to you about what’s going on and why focusing on the long term is far more productive than trying to decipher the noise.
If having read this article you feel like you need to do something about your pension, then give us a call. It doesn’t cost anything but could make all the difference.
Andrew can be contacted at 021-4248015.
Table 1: The theoretical effect of a portfolio growing at a 3% rate vs. a 4% rate over a 20-year period. The figures below do not take account of fees and is for illustrative purposes only. Warning: The information in this article is for illustrative purposes only and does not purport to be financial advice as it does not take into account the investment objectives, knowledge and experience or financial situation of any particular person. You should seek advice in the context of your own personal circumstances prior to making any financial or investment decision from your own adviser. There are risks associated with putting a financial life plan in place. There is no guarantee that by having a financial life plan in place, you will meet your objectives. Forecasts are not a reliable indicator of future performance. The value of your investment may go down as well as up. J& E Davy Unlimited Company, trading as Davy, Davy Private Clients, Davy Capital Markets, Davy Select, Davy Institutional Consulting, Davy Real Estate ad Davy research is regulated by the Central Bank of Ireland. Davy is a Davy Group company and also a member of the Bank of Ireland Group