Irish Financial Review

Budget 2018 – 5 Pension Planning Tips

By Frank Conway

Top 5 Pension Planning Tips

There are a few smart tactics to be considered to keep pension plans on track, depending on the types of pensions an individual may hold and where they are in their life cycle.

Tip 1: Take FREE money and max out on tax relief that belongs to you!
If you are a higher rate of tax payer you should contribute as much as you can afford to avail of tax relief at 40% (2017 rate) subject to the maximum contribution limits. This chart provides the maximum allowable limits for personal contributions:

Age Amount which qualifies for tax relief
Under 30 years 15% of net relevant earnings
30 to 39 years 20%
40 to 49 years 25%
50 to 54 years: 30%
55 to 59 years 35%
60 and over 40%

Tip 2: Consolidate your accounts

Increasingly, we work for more than one employer and if you have been contributing to various pensions, you may want to examine the value of those perhaps even consolidate them to have one unified account (some employers may not permit this option). But it is always good to carry our this single-view exercise as it means that employers will have your personal records up to date, plus, it will make it easier to file for your benefits when the time arrives.

Tip 3: Start early

The best way to grow your pension pot is by starting early. Why? Well, it is because you can put the power of compound interest growth to work for you. And this is an important point in the growth of pension wealth. Remember, it is not just the savings and tax relief that you, your employer and Government offer, at the end of the day, it the very significant growth potential of compound interest growth that creates very significant personal wealth and the longer you are making pension contributions, the greater the ‘compounding’ impact.

Tip 4: Reduce management fees and charges

As outlined in Point 4, the real growth in the value of a pension fund is the compounding impact of interest over time. But, many older pension accounts have very high ‘management’ fees and charges and these simply rob your long-term growth potential. So, it is important you become familiar with what the overall Ongoing Charges Figure (OCF) that is applied to your fund(s).

Tip 5: Put yourself first

With any pension plan, the longer you contribute and the more you know, the more likely that you will start early, reduce fees, maximise contributions and minimise fees, this is a winning formula. But, be humble – ask your adviser all of the difficult questions and remember, there are no ‘dumb’ questions when it comes to growing and protecting your personal wealth. If you are not prepared to put yourself first, chances are high that your pension may not grow as fast as it could

 * Net Relevant Earnings: Earnings from a trade, profession, office or employment which are subject to income tax. Net relevant earnings are capped at €115,000 for 2016. (Part 30 of the Taxes Consolidation Act (TCA) 1997 as amended.) Tax relief is only available where you have Net Relevant Earnings in the tax year. 

* * The rate of 30% applies to certain specified occupations irrespective of age

Nobel Prize for ‘Nudging’ Economics and Better Money Habits

By Frank Conway

What great news! US economist Richard Thaler, one of the founding fathers of behavioural economics, has won this year’s Nobel Prize for Economics.

Professor Thaler’s behavioural economics ‘nudge’ can help people make better money habits

Why this is so important is that in an era where more and more financial responsibility is being placed onto the shoulders of consumers to nurture, grow and protect their financial well-being, Prof Thaler’s research provides very important insights into how people can be ‘nudged’ to make small yet important decisions that impact their long-term financial well-being.


Prof Thaler’s work explores how human psychology shaped economic decisions. His insights helped people to recognise marketing tricks and avoid bad economic decisions.

Prof Thaler’s central insight is that we are not the rational beings beloved of more traditional economic theory.

Given two options, we are likely to pick the wrong one even if that means making ourselves poorer.

In financial education talks given by MoneyWhizz to working adults, the four core elements of building and protecting personal wealth are explored in great detail, those include:

  1. How to build a rainy day fund.
  2. How to buy a home (it acts as a forced savings account)
  3. How to have adequate protections in place to protect income, health etc).
  4. How to save for retirement

Professor Thaler’s studies reveal that a lack of thinking time, poor money habits and poor financial decision-making mean that even when presented with a factual analysis (for example on healthy eating) people are often still likely to pick burger and chips over healthier options. But these decisions are driven by lack of understanding (and lack of financial education) and emotional reactions to creative marketing and even financial incentives to buy poor products over ones that provide long-term benefits.

Professor Thaler’s ‘nudge theory’ takes account of this, based as it is on the simple premise that people will often choose what is easiest over what is wisest. But that is not to suggest that prudence is a hopeless cause when it comes to making the best decisions.

For example, tests have shown that putting healthier foods on a higher shelf increases sales. Awareness campaigns can also have a positive impact.

The food is more likely to be in someone’s eye line and therefore “nudge” that person towards the purchase – whether they had any idea about the obesity argument or not. This same theory applies to major financial decisions. For example, in pensions, where people are ‘nudged’ to sign-up by way of auto-enrolment, the prospect of becoming a regular pension contributor is far higher than if one were given the mere option to sign-up on their own.

Slaying the Bitcoin fraud

10 or so days ago when the price of a single Bitcoin reached a staggering $4,600, I search its price trajectory.

The math was astonishing.

Image result for bitcoin

Bitcoin has taken on many characteristics of a speculative investment bubble

A €5,000 investment in Bitcoin in 2010 would be worth over €300 Million today.

Recently, while preparing to deliver a seminar at one of the largest global tech firms, some of the attendees were discussing the so-called cryptocurrency, which is the collective description of what concepts like Bitcoin belong to. Some were wondering if they should invest. Smart, cash-rich and well-informed, they didn’t like the odds and didn’t ‘get’ the concept but they were keen to get as much information as they could.

I have always doubted the investment proposition of cryptocurrencies like Bitcoin.

This is because they threaten a critical function of Government, which is to govern.

Modern currency is also known as Fiat currency. In other words, it is not backed by anything other than a promise by Government to pay the value of the currency. In this past, currency was backed by Gold.

Currency serves 3 specific functions, which are:

They are a unit of account

They are a store of value and

They are a medium of exchange.

That says a lot. For example, as a medium of exchange, Governments will always want to maintain a high degree of control over the value of money from a trade (domestic and international) perspective. Devalued currency for example can provide Government with options to boost trade, or reduce the real value of debt.

So, when it came to Bitcoin, I have always felt that while it continued to exist as an exotic form of currency used primarily by shady traders on the ‘dark web’, as long as it did not interfere with the daily activities of Government, then it could survive.

Then, within a few days, Chinese authorities acted.

Their primary goal was to shut down Bitcoin exchanges. This resulted in traders being scared off.

Today, Jamie Dimon, JPMorgan’s boss launched a blistering attack on Bitcoin, calling it a ‘fraud’.

It has resulted in traders becoming even more sacred.

What was a ‘sure bet’ 10 days ago is starting to look like a one-way bet to some big losses today.

Looking at Bitcoin’s price trajectory today, while it is falling sharply, the falloff in many ways mirrors it’s rise just 2 weeks ago so this could all prove to be a corrective blip in the long run.

But it is the long term where Bitcoin is likely to find the going difficult.

It has taken on the characteristics of a speculative bubble. It has become a modern-day Dutch Bulb phenomenon with cash rich investors pushing the price sky-high on little more than a gamblers impulse.

With the latest Chinese intervention, Bitcoin’s time may have been called. How interesting the Chinese intervention really is. Over 2,000 years ago, it was China that gave the world the concept of modern-day currency and here it is again slaying Mr. Dimon’s fraud!

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