Pensions in the new decade
How on earth did this happen? I remember the celebrations for a new century like it was yesterday and now we are at the start of the third decade of the 21st century. Back in 2000, the biggest worry was the Y2K bug and I was about to start a new job as a pension consultant with Construction Federation Executive Pension Scheme (now CERS). Time marches on.
As we’ve just welcomed in the 2020s, now is a good time to reflect on the impact that time has had on our lives and to consider what’s likely to be different in relation to pension planning in the 2020s.
Let’s start by reflecting on the last decade. At the beginning of 2010, we were in the grip of the economic crash. The construction sector was the most challenged sector as employment and productivity plummeted. The personal wealth of many individuals had reduced and pension fund values had fallen in line with global stock markets.
Thankfully over the past few years we have seen a strong recovery. The construction sector has picked up, the Irish economy has grown stronger and pension funds values have seen a remarkable recovery. The bellwether S&P500 Index grew by an average of 10% per annum over the past decade.
So what are we likely to see in the next 10 years?
The big cloud on the horizon, which impacts us all, is the unfunded pension liabilities owed by the Irish State. These are the promises made in the form of State old-age pensions and public-sector pensions, and the last published estimate of this liability stood at €345bn in 2015. When you consider our national debt is just over €200bn, it gives you a sense of the scale of the issue. This issue is only getting worse, as over the next 30 years the ratio of people working and paying into the State to pensioners taking from the State scheme will fall from 5:1 to 2:1.
As Susan O’Mara of Milestone Advisory, points out in her article in this issue, part of the Government’s response to this problem was to push out the State pension age from age 66 now to 68 from 2028 and the much-heralded introduction of auto enrolment has gathered pace. However, some of these solutions may change following the February 2020 election.
Taking Responsibility for Your Pension Plan
Regardless of what shape pension reform takes over the next couple of years, the ultimate goal of the Government will be to get everyone to take a greater level of responsibility for their pension planning. Thankfully, this is something we are seeing every day in CPAS. We have seen strong growth across all areas of our schemes – the numbers of employers participating, the number of active members within the schemes and also the levels of contributions being paid.
As awareness of the importance of pension planning grows and pensions have become part of the political discussion, we anticipate these trends continuing with members taking greater levels of personal responsibility in relation to pension savings. Many of our members are taking advantage of the tax breaks available and there is a significant growth in the payment of additional voluntary contributions (AVCs) with many members foregoing a pay increase and instead increasing payments to their pension funds. These people recognise that “old age” lasts a lot longer than it used to, and a decent pension fund is needed to maintain a good standard of living in retirement – particularly in light of the state being unable to provide any more than subsistence level benefits.
Pension Investment Strategies
Another trend we see is the greater levels of diversification of assets when it comes to investing those pension savings. Too many people saw a drop in their pension funds values by being overweight in a single asset class. A diversified fund, invested over the long-term, with a lifestyling element as members approach retirement, is a far more robust investment strategy to deliver the outcomes members are seeking.
CPAS looks forward to meeting the pension needs of the construction sector in the years and decades to come. Our team on are hand to help and if you would like any further information please contact us at (01) 407 1400 or by email (firstname.lastname@example.org).