The upsides of building wealth slowly
that it’s perfectly acceptable to build wealth slowly.
The upsides of building wealth slowly
Maybe it’s a stage in life that you get to, when eventually you recognise that building wealth for most people is a pursuit that happens over many years, indeed decades. And most importantly, that it’s perfectly acceptable to build wealth slowly.
Certainly when we’re much younger – in our teens and twenties – the idea of quick riches is very alluring. The constant barrage of people on TikTok and Instagram who have “made it” at a very young age can drive heightened levels of envy. If they can do it, why can’t I?
But as we get older, we start to understand that for every successful and overpaid sports star and celebrity, thousands have been unsuccessful in their pursuit of riches by this route. That’s not to say that talented people shouldn’t have dreams and go for it, and ultimately be well rewarded. Because good luck to them! But it’s a very tough road on which many people flounder.
And then we see lots of incredibly wealthy people who made their riches by building up and eventually selling some or all of their businesses. Again, these people should only be applauded, as they may well have taken an idea, not listened to the naysayers and then put their heart and soul into building their successful enterprise. Well done to them, they deserve everything that they have achieved.
And then there are the others, who hit lucky. They got in (and out) of some risky asset class at just the right times and made their fortune that way. Of course, in their eyes, there was no luck involved – it was all down to their savvy investment decisions. We know that for every one person who timed markets perfectly, there are so many more who got it very badly wrong.
But the likelihood is, all of these people paid a price in some way along the road to success. The price may have been the significant time spent in a laser like fashion in their pursuit of success. Or indeed the significant risks they took along the way by being exposed to a single asset.
There is another way.
The alternative is – to build your wealth up slowly. While you may not get the opportunity to tell the world about your exceptional talent or investment wisdom, there are many upsides to it.
People who build their riches through sporting achievements or indeed building businesses use enormous amounts of one of life’s most precious resources in doing so – their time. Building your wealth slowly through structured financial planning and wise investment decisions does not use lots of time, leaving it available for you to use as you want. You may be replacing the road to quick riches with time spent with your family, being home in the evenings to eat dinner with the kids and getting to support them at those precious football matches.
We’ll also never leave you sitting there, sweating about the prospects of some investment bet that you took. Because we’ll never suggest you take the roulette approach and invest all your money on a single share or some volatile asset class. You might not get rich overnight, that will take more time. But your family will always be secure, irrespective of how markets perform. We think you should celebrate these facts, spending time living your life to the full and never putting it all at risk.
Hats off to the successful people. But hats off too to those people who took the alternative path of living life to the full. There’s a lot to be said for being driven by the life you want and not the public acclaim of riches.
Auto enrolment considerations for employers
For employers, the NAERSA will be a critical point of contact, providing guidance on their responsibilities and ensuring that the enrolment process is as straightforward as possible.
Auto-enrolment is a major development on the horizon for Irish employers. With the government's plan to introduce this new pension scheme, it’s vital that businesses of all sizes understand what it entails, why it is being introduced, and how they can best prepare for the upcoming changes. As your financial adviser, we want to guide you through some of the key questions, ensuring you’re equipped with the right information to make sensible decisions about this important development for your company and your employees.
What is Auto-Enrolment?
Auto-enrolment is a new national retirement savings system set to become mandatory for many employers in Ireland. Under this system, workers who do not have access to a workplace pension scheme will automatically be enrolled in a national retirement savings plan. Both employers and employees will make contributions, with the government also making an additional contribution to help boost savings.
The key idea behind auto-enrolment is to make pension savings easier and more accessible for employees, particularly those who are currently under-prepared for retirement. Auto-enrolment simplifies the process by automatically enrolling workers into a pension scheme, with the option for them to opt-out under certain conditions if they choose not to participate.
Why is Auto-Enrolment being introduced
It’s being introduced to address a significant issue in Ireland: the pension coverage gap. Studies have shown that only about 35% of private sector workers in Ireland are covered by workplace pensions, which means a significant number of employees are not setting aside savings for retirement. Many others are not saving adequately for retirement, and there is concern that a large proportion of future retirees could face financial challenges in their later years.
The government’s primary goal with auto-enrolment is to improve retirement outcomes for Irish workers. It encourages people to begin saving for retirement earlier and more consistently. By automatically enrolling eligible workers into a pension plan, the policy overcomes inertia, one of the main barriers to pension savings. Many people delay or avoid signing up for pensions, often because the process seems complicated, or they underestimate the importance of long-term saving for retirement. Auto-enrolment removes these barriers by making pension participation the default option.
What are the main features of Auto-Enrolment?
Automatic enrolment for eligible workers: Employees between the ages of 23 and 60 who earn over €20,000 annually and do not currently have access to a workplace pension will be automatically enrolled in the scheme.
Set contribution levels: Employers will be required to contribute a percentage of their employees’ gross earnings to the pension scheme. Employees will also contribute a matching percentage from their wages. Also, the government incentive will amount to 1/3rd of an employee’s contribution, which equates to tax relief of 25%. The initial contribution amount will be 1.5% of salary by the employer and also the employee, rising to 6% from each over a 10 year period.
Opt out options: Employees will have a window to opt out of the scheme after a 6-month period and a number of other points in the future. However, they will be automatically re-enrolled in the scheme after a two year period outside of the scheme.
Choice of funds: Employees will have a choice of funds to invest in, with a default fund option available for those who prefer not to make an active choice. The government aims to provide a range of low-cost, high-quality investment options to ensure that retirement savings grow effectively over time.
When will Auto-Enrolment be introduced
Finally there appears to be some clarity... At the end of September, the Minister for Social Protection announced that auto-enrolment would commence on 30th September 2025. This allows a period of one year for the scheme to be established, investment fund managers appointed and the necessary communication campaigns to happen. There's a lot of work to be done.
The cynics amongst us might point out that there have been commencement dates announced previously, that have passed us by. With a general election definitely happening during this period and with whatever that might bring, I probably wouldn't bet the house just yet on that commencement date being achieved...
Who is overseeing Auto-Enrolment?
The oversight and administration of the auto-enrolment system will fall under a newly established body called the National Automatic Enrolment Retirement Savings Authority (NAERSA). This body will be responsible for managing the enrolment of employees, collecting contributions, and facilitating the investment of funds. They will also handle communication with employers and employees, provide educational resources, and ensure compliance with the scheme.
For employers, the NAERSA will be a critical point of contact, providing guidance on their responsibilities and ensuring that the enrolment process is as straightforward as possible.
There is a significant amount of work for this body to undertake to be ready for auto-enrolment, both in terms of establishing the scheme and also in engaging with all employers in Ireland.
What should employers do to prepare for Auto-Enrolment?
Remember first of all that we're all over this! It may be very beneficial to contact us to discuss what might be best for you and your employees. While we won’t play a role in auto-enrolment, there are a number of areas for you to consider, where our thoughts may be helpful.
How Auto-Enrolment will interact with your current pension arrangements: Just as one example, does your current scheme include all employees aged between 23 and 60 who earn over €20,000 p.a.? If not, you will likely need to include these people in your scheme or run the auto-enrolment scheme alongside your current scheme.
Higher earners who are not in your current scheme: Under existing pension rules, marginal rate taxpayers get tax relief at 40% on pension contributions. They will be substantially worse off under auto-enrolment, where the government incentive equates to tax relief at a rate of 25%. How will you approach this?
Update payroll systems: Auto-enrolment will require ongoing contributions from both employers and employees. You’ll need to ensure your payroll system can handle these deductions and that you can integrate seamlessly with the NAERSA’s systems.
Educate your employees: While auto-enrolment aims to simplify pension savings, it’s essential to educate your employees about the benefits of the scheme, their contribution levels, and their right to opt out. By providing clear communication at the right time, you can help employees make informed decisions about their retirement savings.
Stay informed: The auto-enrolment system is still being developed, and there will likely be updates and changes in the coming months. Stay informed about the latest developments and guidance from the government to ensure your business remains compliant and ready for the new system.
While the introduction of auto-enrolment may seem daunting, it is ultimately a positive step towards improving retirement outcomes for workers across the country. By engaging with this early, you can prepare your business for this new environment and help your employees secure their financial future.
The power of a regular review.
Skipping your annual financial review is a bit like ignoring an engine light on your car’s dashboard—it might not seem urgent until it's too late
You might be wondering if you need to bother reviewing your financial plan every year. After all, if we've already done the hard work of setting it up, why tinker with it? Here’s the simple truth: the world changes, life changes, and so must your financial plan. Skipping your annual financial review is a bit like ignoring an engine light on your car’s dashboard—it might not seem urgent until it's too late. Let's consider why these reviews are crucial and how they can keep you on track to achieving your financial goals.
The Ever-Changing Economic Landscape
The economic environment is anything but static. Interest rates fluctuate, inflation rates vary, and economic growth can stall or surge without much warning. These shifts can have a profound impact on your financial goals. For instance, a rise in interest rates might make it more expensive to borrow money, affecting your plans for buying a home or expanding your business. Conversely, a robust economic environment might mean your investments are performing well, potentially allowing you to reach your financial goals sooner than expected. Annual reviews help you adapt your financial strategy to these economic changes, ensuring that your plan remains effective and relevant.
Market Volatility and Investment Performance
The financial markets can be unpredictable and often do not perform in line with the assumptions made when we first crafted your plan. For example, if the stock market takes a downturn, the value of your investments might decrease, which could delay your retirement or other financial goals. On the other hand, a booming market could boost your investment portfolio, providing opportunities to invest in other areas or achieve your goals earlier. Regular reviews allow you to assess whether your current investment strategy is still appropriate or if adjustments are needed, such as rebalancing your portfolio to align with your original asset allocation or risk tolerance.
Changes in Your Risk Tolerance
Risk tolerance is not a constant—it evolves with your age, financial situation, and personal experiences. Early in your career, you might be more willing to take risks for higher returns. As you approach retirement, you might prefer preserving capital over seeking high returns. Regular financial reviews provide an opportunity to reassess your risk tolerance and ensure your investment choices reflect your current comfort level with risk. This adjustment helps safeguard your investments against unwanted risks and aligns your portfolio with your life stage.
Life’s Significant Events
Life is full of surprises and significant events that can alter your financial landscape. Major life changes such as marriage, the birth of a child, a career change, the changing fortunes in your own business or the onset of a health issue necessitate adjustments to your financial plans. For instance, the arrival of a new family member may increase your expenses or change your goals, such as saving for education. Similarly, a new job or a promotion might increase your income, allowing you to save more or pay off debt faster. An annual review ensures that your financial plan accommodates these changes, keeping your financial goals achievable despite life’s unpredictability.
Shifting Goals and Priorities
As you journey through life, your goals and priorities are bound to shift. Perhaps you initially set out with the headline objective of buying a first home or even a bigger house, but now you're more interested in acting on your creative idea and want to put any spare cash to use in starting a business. Or maybe you’ve achieved your goal of setting up a college fund for your children and now want to focus on retirement planning. Whatever the case, regular reviews give you a chance to realign your financial strategies with your evolving goals. This ensures that your financial resources are being directed toward what’s most important to you now, not what was important five or ten years ago.
Embracing regular financial reviews is about committing to the planning process, not just setting a plan and forgetting about it. This process involves ongoing adjustments and fine-tuning, which are essential for dealing with the complexities of financial management. A plan that is frequently reviewed and updated is more resilient and more likely to succeed because it adapts to new information and circumstances. Think of it as dynamic tuning for your financial engine, ensuring optimal performance no matter what lies on the road ahead.
In essence, an annual review is your opportunity to take control of your financial journey, regardless of the twists and turns of life and the economy. It’s about making proactive adjustments to ensure that your financial plan remains a true reflection of your current life situation, goals, and the economic landscape. By committing to this annual exercise, you ensure that your financial strategy is not just a static document but a living framework that grows and evolves with you. Remember, staying engaged with your financial plan through regular reviews is not just good practice - it’s essential for navigating the uncertainties of life and securing your financial future.