Get control of your rugby ball
WOULD you turn down a pay increase?
Of course not. We'd all take the extra money, and the right arm off them. So we should. We work hard enough for it.
Well, as a pension saver, now's your chance to keep your income as high as possible until you're 80.
Since the new tax year started this month, millions of workers have moved to larger contributions to their auto-enrolment workplace pension.
In case you haven't been following this too closely, or have just arrived from a distant planet, I'll just say a few words about auto-enrolment. This is where eligible workers automatically become members of their workplace pension, but can opt out afterwards, if they like. It's a bit like doing the Lotto: if you're not in, you can't win, but feel free not to, if it doesn't suit you.
For many, the contributions to the auto-enrolment pension have tripled this month. They rise from 1 per cent to 3 per cent of salary. This is no surprise, it was built into the plan. Yes, it does cost a few pounds extra, but investing in your old age? You could do worse.
Besides our auto-enrolled workplace pension, we have the state pension, but as regular readers will know, all is not well on that front.
The state pension scheme is like a rugby ball. It is being passed from one government to the next - but this rugby ball is leaking air. The number of workers paying in to the state pension is not growing as fast as the number of (retired) people drawing out. We're all healthier and living longer, so our retirements are lasting longer, you see.
They're going to have to start putting us down shortly, and the vets will become the new doctors.
In the long term, the pool of cash in the middle, between those paying in and those drawing out, will struggle to meet demands. And also, sooner or later somebody's going to point out that in rugby, it's against the rules to pass the ball forward – the puncture will need to be addressed.
Ho hum. We need something more optimistic to think about on this topic – like some scenery. Let's go to ...Croatia!
According to a new report earlier this year from the Organisation for Economic Co-operation and Development (OECD), Croatia has achieved a situation where people's incomes actually go up rather than down, when they retire! And not just slightly – incomes in Croatia go up by 29.2 per cent.
How cool is that?
Other countries that increase or almost maintain your working wage when you retire are Turkey (102 per cent), the Netherlands (100.6 per cent), India (99.3 per cent), Portugal (94.9 per cent) and Italy (93.2 per cent). Of course, wage levels are very different in each of these countries, but the point is that the standard of living citizens were used to is maintained.
Which brings us to our own situation here in Northern Ireland. I can already see you cringing.
For us, our ‘replacement rate' income, from the state pension combined with our workplace pension, FALLS by almost three quarters on average, to 29 per cent of our last working salary. Compare that to the EU average of 71 per cent. No wonder the UK is known as the ‘pensions miser' of Europe.
We have a tendency to be complacent about these things, but the trend is not good. However, there are various ways to plan ahead now to ensure we have the best standard of living later in life.
Additional voluntary contributions (AVCs) are just the most obvious one. You are not limited to paying today's amount into your pension. You can choose to put more away, if you wish.
The most important step is to sit down and make a plan. And that is where your friendly neighbourhood financial adviser comes in.
Put the paper down. Pick up the phone. Get control of your rugby ball.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005 . Further information is available on the Facebook page 'Kennedy Independent Financial Advice Ltd'.