- 4 in 10 Say Pension Access Could Help People Achieve Big Financial Milestones
- 1 in 8 Believe People Should Be Allowed Access Pension Early So They Can Better Manage Living Costs
With the countdown to October’s Budget on and concerns emerging that Ireland’s economy is in the midst of a ‘silent slowdown’[1], financial advisers in Ireland are divided on whether or not they would support moves to allow people to access their pension early – similar to moves made in the wake of the financial crash of 2013. A survey of over 130 advisors nationwide, by leading pension trustees Independent Trustee Company (ITC), revealed that marginally more advisors would be against the move (52pc) than those who would be in favour (48pc).
The survey asked advisors if they felt the Government should allow individuals who had topped up their pension to have early access to some of it before they retire, as was the case between 2013 and 2016 when the Government introduced a temporary scheme which allowed people to do so. Under that temporary scheme, individuals who had added to their pension fund through additional voluntary contributions (AVCs) were allowed early access to that portion of the fund before they retired. The scheme, which allowed individuals to withdraw up to 30% of their AVC fund, was introduced by the Government in response to the Irish economic downturn of 2008 to 2013 so that people in financial difficulties could access some of their retirement savings if they wished to do so.
While Ireland’s economy is in a much better position than it was during the economic downturn of 2008 to 2013, it is not without its challenges. Recent data from the CSO shows that growth in new jobs has slowed while the number of jobs being lost has increased. High inflation – particularly in areas such as food, energy and housing/rental accommodation - continues to prove challenging for consumers and businesses.
When asked if the Government should introduce a similar temporary scheme today:
- More than four in ten (44%) advisors agree that such a scheme should be introduced in order to help people achieve major financial milestones, such as buying a house or car, or funding the cost of college for a child.
- Almost one in eight (12%) believe such a measure should be introduced in order to help people manage living costs.
- 47% said they would be against such a measure because it would “eat into people’s retirement income” when they come to fully retire.
- 13% wouldn’t support the measure because “it would not be tax efficient” for pension holders.
Commenting on the survey findings, Glenn Gaughran, head of business development with ITC said:
“Through their work, financial advisors have a unique insight into the financial challenges and dilemmas which Irish people face. Given the high cost of housing in Ireland, with a recent report by Daft.ie[2] finding that house price inflation here has reached a ten-year-high, it is perhaps no surprise that more than four in ten advisors believe that people should be allowed to dip into their pension early in order to better their chances of achieving key financial milestones, such as buying their first home. College costs, which could come to as much as €74,780 over the course of a four-year undergraduate degree for a child living away from home[3], are also a huge financial challenge for many parents and this is another reason advisors expressed support for a measure which would allow early access to retirement savings.
Our survey also found that almost one in eight advisors believe early access to a pension pot should be allowed so that people can better weather Ireland’s high living costs. Again, given that Ireland is the second most expensive country in the EU, with prices for basic goods and services a staggering 38pc above the EU average[4], this too is not a surprise.”
Mr Gaughran added:
“If the Government did introduce a measure which allowed people to draw down money from their pension early, it would be important that pension holders err on the side of caution.
Not only could taking money out of your retirement savings early be a bad move tax-wise, ultimately it could also mean you will have less in your pension pot when you come to fully retire. As people are generally living longer lives today, the money in a pension pot needs to last longer. If you live into your Nineties (or later), you might regret accessing money in your pension early on as you might run out of money before you die, meaning you could struggle to make ends meet at that stage and might even need to go back into the workplace. Another thing you need to be mindful of is the substantial medical and nursing home fees that might arise in your senior years – and your ability to fund these in the future if you accessed some of your pension early.”
Today’s survey follows similar research conducted by ITC last year, which found that almost half of financial advisors (48pc) believe the Irish government should allow first-time buyers to access their pension funds for property purchases.
Mr Gaughran added:
“While our recent research has clearly found support amongst financial advisors for early access to retirement savings in certain circumstances, the Government will be keenly aware of the impact on pension pots and retirement lifestyles if it were to introduce such a scheme – and for this reason, it may be reluctant to introduce such a measure again.”
[1] Recent jobs data from the CSO, which show that growth in new jobs has slowed while the number of jobs being lost spiked, has prompted concerns that Ireland’s economy could be in a ‘silent slowdown’.
