For Dan Moroney, there are two dominant trends in the wealth-management space at present. The first is the changed pensions landscape which has seen the great majority of private-sector pension schemes move from defined benefit to defined contributions structures; while the second relates to the changed economic environment which has made succession planning an issue for large numbers of Irish people for the first time.
“A lot has changed for the industry over the past 15 years or so,” he says. “And this has created an increased requirement for some form of wealth management. In general, living standards have improved greatly over past 30 years or so. Notwithstanding the recession and that not everyone has benefited to the same extent, we have seen the emergence of a large swathe of middle-class individuals who have amassed savings and personal wealth that they need to look after.”
For many of those people, their most significant pool of savings will be their pension fund. “Thirty years ago, the vast majority of private-sector workers who were lucky enough to be in an occupational scheme had a defined benefit (DB) pension and they had no decisions to make. But the days of DB pensions have been numbered for quite some time now and very few if any new private-sector employees will have an expectation of a DB pension.”
Indeed, many of the remaining schemes are seeking ways to wind up and are offering members enhanced transfer values to incentivise them to leave.
“For people in defined contribution (DC) schemes and in personal pension schemes, good robust investment and planning advice at an early stage can have an astronomical effect on the individual’s standard of living in retirement,” Moroney points out.
One of the issues is that a lot of Irish people have a quite jaundiced view of pensions due to past experience. “A lot of them saw their pensions blow up as a result of bad investment decisions. This was a problem with their investment choices and possibly with the investment advice they received. They should not confuse an investment issue with the value of the pension structure itself. The structure is very useful if it is used properly. You get a tax break on the way in and your assets grow in a tax-sheltered environment over long period of time. This is extraordinarily powerful in terms of building wealth and you really do need robust advice on planning and investment at the earliest stage possible.”
Build up
People don’t appreciate just how quickly a pension fund can build up, he adds. “If people start reasonably early, it really is incredible how much they can save. For example, if an individual starts their pension reasonably early in their own scheme or an occupational scheme, they build up a very significant sum over a few decades. If they start in their 20s, they could have a significant six-figure sum by their mid-50s and they wouldn’t have to be earning a huge salary to do that.”
But this is not readily understood. “Many people who can easily afford to contribute to pensions are not aware that they are sleepwalking into a situation where their standard of living in retirement will fall quite sharply. I would fairly regularly meet individuals who say they are buying properties instead of pensions. But you don’t have to use after-tax income to buy a property asset. You can put money into a vehicle that will invest in property assets in different ways or even directly into properties and you can get tax relief on the money and see the assets grow tax-free.
“Wealth management is about making the right choices and it really is for everyone who can afford pension contributions,” he continues. “Everyone with a DC pension does need some advice. Maybe they won’t go to a private bank in the early years but they should speak to an adviser at the start of the process to make sure they are on the right track.”
The other area where he sees wealth-management coming to the fore is in succession planning. “There is a lot more wealth in the country now than there was in the ’60s, ’70s, ’80s, or ’90s. With that has come a situation where we have many more people with wealth to pass on to the next generation. We haven’t really seen this before in this country and they need assistance and advice to help them put the right strategies in places.”