Why are pensions so good?
Tax relief, Tax relief, tax relief. Pensions are great because you get tax relief on contributions when you pay your premiums. The fund then grows tax free all the way to retirement and then you get tax free amounts back when you go to retire.
For example if you earn above €40,000 then you are going to get 40% back on any contribution you make from revenue. So if you put €200 quid into a pension the full €200 get’s invested but €80 goes back into your pocket so while €200 has gone into your pension it only cost you €120. That’s a 66% return instantly. You have turned €120 into €200. Happy days.
On top of this the fund should grow if you have selected your funds wisely. Basically pensions get invested into pension funds. The fund you choose will dictate the returns you make each year. They are not guaranteed and as such can go up and down.
I recommend you speak to a Certified Financial Planner when choosing funds as you need to consider the level of risk you are taking. Basically you go into a fund or range of funds that have a risk value attached from 1-7, 1 being risk free and 7 being risky. Everybody’s score will be different based on their attitude to risk. There is no right or wrong answer and your fund choice should just be linked to the level of risk you are comfortable with.
Generally speaking the more risk you take over time the better the returns will be. When we talk about risk we talk about volatility. No fund grows in a straight line. Over time there will be lots of ups and downs in the market especially when you are in funds of a higher risk. Given time history has shown that the more risk you take the better returns will be for your pension.
The earlier you start the better as this will obviously mean you will have more invested and funds will have got the benefit from compounding interest, which is interest on top of interest.
There are lots of different types of pensions including
1.Company Pensions (master trust executive pensions)
3.PRSAs (individual and Company)
The type of pension you go into will depend on your personal circumstances, e.g are you self employed as a sole trader or company owner or do you work for a company?
Generally speaking you commence draw down of your pension aged 60.
Some company pensions will however enable you to retire from as young as 50.
If you would like to discuss any pension issue we are happy to help.
You may also like to read:
- Are Financial Life advisors qualified?
- Pension services from Financial Life
- Types of Insurance
- What is a Pension Term Assurance Plan?
- What is Specified Illness Cover?
- What is the difference between Life Insurance and Mortgage Protection?
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