Laura Doyle wants to make pensions sexy. It might sound like an impossible task, but the pension adviser's plan, if it takes hold, could save many people a lot of heartache 40 or 50 years from now.
While that heartache may be a long way off, it will be real for many millennials, particularly those who think of themselves as having a fabulous retirement ahead of them: hiking to Machu Picchu in the dawn’s early light and surfing off Bondi on Christmas Day. But will they be able to afford it? That could be a problem.
All things being equal, more than 40 per cent of retirees in 2050 will be relying on the State pension to see them through their golden years. Some hope. At today's levels of just over €230 a week, it will barely cover the cost of a trip to Centra, never mind Chile.
Medical advances mean that most people in their 20s or 30s will live at least 10 years longer than their grandparents, and many kids born in this century will live well into the next one.
With people living longer, pensions really matter. And the earlier you start, the better. A 30-year-old who wants to fund a private pension returning just €8,000 a year when they retire at 68, must make gross monthly contributions of about €120 – a figure that falls in real terms by about half thanks to tax relief. For those who wait until they are 45, the monthly figure almost trebles. While €8,000 is not a lot, it could be used to top up the State pension to give a person an income of €20,000 a year.
Doyle is a managing partner at Dublin-based Progressive Financial Services and one of a younger cohort of pension advisers who understand that if young people are to be convinced of the value of putting money – even modest sums – into a pension, they need to be sold on the idea in a way that makes sense to them.
Last month, Aviva published a report highlighting the scale of the pension problem in Ireland. "Ireland's current generation of retirees – those retiring between 2017 and 2057 – need collectively to save an additional €27.8 billion per annum to provide an adequate income in retirement," the report says. "This gap has increased from €20.2 billion in 2010."
Doyle has no issue with the report, but she has concerns about how the information is presented and wonders if more could be done to make it appeal to younger people. “It makes for some scary reading,” she says. “The long and short of it is that more people need to start planning for retirement. But I fail to see how this report would motivate [young people] to action. I think we need to take a step back and look at the bigger problem with pensions: our perception of them.”
Knowing the benefits
Last week she carried out a straw poll among dozens of her peers, asking what was the first thing that came to mind when they thought of pensions. “Every single person either said old people or old age.”
But, she says, a pension is "a flexible, tax-efficient savings vehicle" and she highlights a huge level of ignorance about the value of pensions and what they can do. According to a Standard Life survey from earlier this year, 60 per cent of people don't realise they are entitled to take a tax-free lump sum from their pension, and 75 per cent don't know tax relief is available at the marginal rate 40 per cent. "How can we expect people to buy into something when they don't even know the benefits?" asks Doyle.
Let’s explain those benefits in detail. If you pay the top rate of tax and earn €1,000 and keep it, the government helps itself to about €500 of your money immediately and more again in the form of indirect taxes. But, if you divert that €1,000 into a pension, the Government takes only €100 – the rest goes into your savings.
Simplicity is the key, says Doyle. “I think it’s time to stop scaremongering and to start having better conversations about our financial plans for the short, medium and long term. We must consider a new angle if we’re to expect people to adjust their attitudes towards pensions.”
She says the fundamentals of financial planning are twofold: habitual behaviour and discipline. “For example, most 25-year-olds don’t want to save into a pension, and who can blame them? It’s so far down the line and frankly their savings habits should be focused on getting a deposit together for their first house at that age.
“But if they were to save the minimum amount each month – €50 gross/€30 net (one gin and tonic per week) – there would be a fund value of €3,100 after five years or €6,725 after 10 years, so when the time comes to sit down and start taking retirement planning more seriously, there is already a little pot waiting to be built upon. It’s so much easier to adapt a plan than to start from scratch.”
The average salary in Ireland is €34,500 per annum, and the typical work span is 40 years. “Let’s assume you contribute 8 per cent of your salary from the get-go and your salary remains static. I think an 8 per cent average throughout the lifetime of someone’s career is very reasonable, considering you can increase, decrease, stop and restart the pension, you would have a fund value of €203,500 when you retire, of which you can take €50,875 as a tax-free lump sum and live off the balance.
Doyle has been reaching out to social-media influencers to see if they can help get her message to a younger audience. One of those she has reached out to is David Anderson, director of branding at marketing agency Outset. His agency looks after people such as Melanie Murphy. You may not have heard of her, but she attracts millions of (mostly young) people from all over the world to her YouTube channel.
“I can see an opportunity for more financially driven content to be pushed online by vloggers,” says Anderson. “I don’t think there could be many (or any) financial-only influencers for young people, as looking in from the outside it could come across as very dull. I think you would have a better opportunity for it to be incorporated into a lifestyle creator’s content, as finance very much falls into that category,” he says.
“I could see an interest among creators to talk about it, as they would be more financially aware than the typical 25-year-old. The creators we work with are some of the biggest in Ireland and they are incorporated as companies or in the process of becoming companies. So they obviously need to be aware, as they are a business themselves.”
He says his agency has yet to create content around pensions because it could be viewed that “talking about savings and pensions is for people with lots of money (most young people scrape by). It can appear confusing, and no one is going to watch content that makes them feel stupid. And they don’t want to share incorrect information with their followers”.
He believes that if the process could be simplified, pensions could reach younger people and he suggests policy-makers work with social media creators “by giving them the tools and knowledge to communicate to their audiences”.