Time to crack open your pension?

As a ‘once-off crisis response’ measure support is growing for the Government to legislate to allow people withdraw some of the money they have locked away in their pension, writes FIONA REDDAN

THE STATE pension slush fund is running out and 80 per cent of defined benefit schemes are in default. But despite such uncertainty, people are nonetheless turning their backs on saving for retirement in their droves.

And now calls are growing for the Government to allow people to access what money they have saved in their pension funds early. Mad? Or a necessary solution to a difficult problem?

We all know the advantages of saving for that far-off day in the future, especially given the tax incentives of doing so – but it can be hard to find the money to do so.

“In an ideal world we all should be putting in the maximum into our pensions, but it is a balancing act,” says financial adviser Simon Shirley, pointing to the fact that people’s budgets are constrained at present.

Indeed according to a recent survey from Friends First, while two-thirds of Irish people have a pension – 20 per cent of those have reduced or stopped contributing to it.

And among the self-employed and small business owners, that rate is probably a lot higher.

“Our experience this year is that very few contributions are being made. People don’t have enough money to pay their tax bill, let alone make a pension contribution,” says financial adviser Brendan Allen.

As Shirley notes: “You have to write the cheque – and you might also be writing a cheque to the Revenue.”

With a property tax on the way, a water charge and possible hikes in the tax burden, people simply don’t have the spare cash to put into a pension.

“Financial pressures on Irish families continue to hamper people’s ability to save and meet their monthly commitments,” says Simon Hoffman, business development director of Friends First, adding that “as a result, more and more people will become reliant on the State pension for their retirement income”.

But we all know this is running out – and fast. On top of this, support is now growing for the Government to legislate to allow people withdraw some of the money they have locked away in their pension, which will deplete these funds for retirement even faster.

For many small business owners however, who may have invested heavily in their pension in the boom years, the illiquidity of this investment is causing them some serious problems.

Allen cites the example of a client, who employs 56 people but his company has run out of money. He has €500,000 in a pension fund, but can’t use this money to help keep his company viable.

“He’s prepared to forego whatever tax relief he benefited from to use that money to help save his company,” says Allen, adding that he would like to see something introduced that is similar to the system in the US, whereby you can temporarily borrow from your pension fund. “That is certainly something that really needs to be looked at here,” he says.