At the turn of this century, yes 25 years ago, it was a stated aim of government to simplify the pensions landscape in Ireland. There was clear recognition then that the range of pensions schemes had mushroomed, and it was time to help consumers by making the whole area of pensions easier to understand.

So how has pensions simplification in Ireland progressed in the meantime? The bottom line is, that it has not really progressed at all. What was an area hard to make sense of 25 years ago, is a veritable minefield today. You step into the world of pensions with caution, and without expert advice you risk making some very expensive mistakes.

Some progress - PRSAs were introduced

In fairness, the intentions were good. Personal Retirement Savings Accounts (PRSAs) were first introduced in Ireland through the Pensions Act 2002. These were the retirement savings vehicle that were to change the pensions landscape, as they were financial products designed to be easier to understand than those available in the market up to that point.  The problem was that after everyone had their say and pitched in their opinions, PRSAs were just added to the existing range of retirement products available, rather than replacing swathes of them as was the original intention. 

So, from the outset, the pensions world simply became more complex! Now consumers had the additional question to ask, “Should I have an old-style pension – a Personal Pension Plan or an Executive Pension Plan – or should I have one of these new PRSAs?” This was on top of all the questions they had about pensions anyway. 

We treaded water… before the pensions world went into crisis

While there were many tweaks and relatively small changes to pensions over the following years, in reality not much changed. Until it changed, with a bang…

Pretty much out of the blue, in July 2022 there was a major upheaval in the pension market in Ireland. Due to sudden regulatory developments, all the main providers ceased to offer one-man schemes, commonly known as Executive Pension Plans. While schemes set up prior to April 2021 were unaffected, any schemes set up since then or in the future would have to comply with significant new regulatory requirements that were introduced under an EU Directive known as IORP II. It was simply not viable for providers to offer a product to meet these new requirements.

The market was thrown into a state of flux, with business owners wishing to establish new pension schemes being unable to make tax-efficient large company contributions. 

PRSAs came into their own

The solution emerged in the Finance Act 2022. While there were a number of impacts to PRSAs, the most significant one was that the only factor that limited employer contributions to a PRSA was the lifetime Standard Fund Threshold (SFT) of €2million. Also, tax relief on all employer PRSA contributions could be claimed in the accounting period in which they are paid. 

This created an enormous wealth management opportunity for owners of highly profitable businesses, who could now extract significant sums out of their business in one swoop. In reality, this opportunity was way beyond the intended outcome of the legislation change and made PRSAs significantly more attractive than other retirement savings vehicles.

Rolling forward to today…

This loophole was eventually changed with effect from 1^st January 2025. The Finance Act 2024 introduced an important change by capping the level of annual employer PRSA contributions, subject to tax relief, to 100% of the employee's salary. Any contributions into a PRSA in excess of the cap will now be treated as a BIK and taxed as income.

While a somewhat understandable change, it has simply increased the complexity in pension planning, as the rules of PRSAs bear no resemblance to those applied to the other main retirement savings vehicle today – the Mastertrust. Sometimes a PRSA is the optimal route, sometimes the Mastertrust is the way to go. Here are a few examples of the type of issues that need to be considered, 

• Under a Mastertrust, the maximum contributions are based on salary, age and company service. Under a PRSA, the employer contribution limit is 100% of salary.
• Depending on age and company service, sometimes greater contributions can be paid to a PRSA, sometimes a Mastertrust enables greater contributions.
• Employee contributions are separate to limits under a PRSA, but form part of the limits in a Mastertrust.
• Funding for future and prior service opens up greater opportunities in a Mastertrust, but not in a PRSA.
• There are very different rules on accessing benefits, either at retirement or on early retirement.
• There are different rules in relation to tax free lump sums
• There are different rules on death under each scheme

These are a snapshot of some of the issues to be considered. Pensions today are a very complex area, the need for expert advice is greater than ever.

“Planning brings the future into the present so you can do something about it now.” Alan Lakein.

When it comes to managing their money, many people find themselves engaged in various financial activities - saving, investing, budgeting - without a clear, overarching strategy. Doing tactical stuff is fine, but a cohesive strategy adds so much more value. The difference between financial strategy and financial tactics is crucial in determining long-term financial success. Unfortunately, we too often see individuals and even businesses adopting a variety of tactics without an overall strategy. This approach often results in fundamentally good behaviours but poor outcomes.

The difference between financial strategy and financial tactics

A financial strategy is a structured plan designed to achieve both short-term and long-term financial goals. It includes wealth accumulation strategies tailored to individual needs, investment planning, tax efficiency and risk management. Tactics, on the other hand, are the specific actions taken to execute a strategy such as saving, maybe investing in shares, or even choosing between a fixed-rate or variable-rate mortgage.

The problem arises when people engage in various financial tactics without aligning them with a broader strategy. This fragmented approach can lead to inefficiencies, missed opportunities, and even financial setbacks.

Examples of tactics without a strategy

1. Saving in a bank account instead of using tax-advantaged options
   Saving money is a sound financial habit, but if all savings are going into a regular bank account after tax, you may be missing out on more efficient wealth accumulation opportunities. For example, utilising tax-relieved saving options such as pensions can significantly enhance financial outcomes over time.
2. Investing without a risk strategy
   We often see individuals either taking on too much risk or not enough. Some people aggressively invest in high-risk assets without a contingency plan, while others park all their money in a deposit account out of fear of market volatility. A well-designed strategy ensures that risk exposure aligns with financial goals, time horizons, and personal risk tolerance.
3. Random investment choices without careful asset allocation
   Many investors buy the likes of shares or property without considering how these fit into a broader portfolio strategy. A strong financial plan incorporates asset allocation to balance growth and risk effectively, ensuring that investments complement each other.

The importance of a cohesive financial strategy

A solid financial strategy provides direction and ensures all financial decisions work towards your financial objectives. Instead of operating in silos, your savings, investments, tax planning, and retirement plans should all function together.

This will ensure that your plans span over a variety of timeframes, as needed. For example, you may be saving towards a major home renovation or educating your children, while also seeking to ensure a nice lifestyle down the road in retirement. You can consider different levels of risk based on your different objectives, and indeed consider the most appropriate savings vehicles to achieve your different goals.

A fundamental aspect of financial strategy is understanding what constitutes enough money for your lifestyle and future plans. Rather than chasing arbitrary wealth targets, we can help you to define a realistic number that will cover your needs, wants, and financial security for the rest of your life.

We will consider future expenses like retirement, healthcare, and potential emergencies, while also factoring in lifestyle aspirations and long-term commitments. The goal is to ensure your passive income sources (investments, pensions, rental income) support your financial independence for the future.

At the end of the day, a clear financial roadmap eliminates guesswork and allows for confident decision-making.

How do you build a strong financial strategy?

There are a couple of important steps, that we’ve set out below. But it’s hard to beat experience in building financial strategies, and that’s where our expertise can really help. We’ll help you really get to the nub of each stage, and focus on what is important. The high level steps we’ll take you through include, 

1. Defining your financial goals
   What do you want to achieve financially? Whether it’s buying a home, funding your children’s education, or retiring comfortably, having specific goals provides direction.
2. Assessing your current financial situation
   Take stock of your income, expenses, savings, and investments. Understanding where you stand financially will help you craft a realistic strategy.
3. Developing a savings and investment plan
   Based on your goals, allocate funds into savings and investment vehicles that align with your risk tolerance and time horizon. Prioritise tax-efficient options.
4. Managing risks effectively
   Ensure you have appropriate insurance coverage, an emergency fund, and a diversified investment portfolio to mitigate financial risks.
5. Reviewing and adjusting regularly
   A financial strategy is not static. Regularly review and adjust your plan to reflect changes in income, economic conditions, and personal circumstances.

Don’t just muddle along. Have a strategy instead.