Want to start your pension, but don’t know how?
Do you look forward to your retirement? No more early mornings, rush hour commuting and soggy sandwiches at your desk. Instead, you can enjoy lie-ins, being the boss of your own time and travelling the world! This all sounds great but unless you win the lotto (there is always hope!) you will need to put aside some time to plan how you will fund your retirement.
The Competition and Consumer Protection Commission (CCPC) has some help with common questions about pensions to help get you started.
Why should I worry about planning for my retirement…it’s years away?
You’ll need to save for your retirement if you want to keep your current standard of living. The sooner you start contributing to your pension, the better. By starting when you are young, you avoid the need to contribute a bigger proportion of your income later in life.
When you retire, you will no longer be earning your regular salary; so having a pension in place will help plug the gap in your finances. If you had to live on a state contributory pension, for example, you would get €233 a week up to the age of 80, and €243 if you are over 80. People are now leading more active lives and living longer so you need to think about how you will make ends meet when you are no longer earning a regular salary.
Where do I start?
If you are young and have just started working, you should start your pension now by putting away a percentage of your salary each month. Check if your current job provides an occupational pension scheme.
Even if you are older, it’s not too late to start. You are probably earning more now than you did in your twenties and can afford to put a bit more towards your pension.
No matter what stage you are at, you need to sit down and make a budget so that you can clearly see how much you can afford to save towards your pension. The CCPC budget planner will help get you started. You also need to think about the type of lifestyle you would like to have when you retire and figure out how much you’ll need to save to achieve this. For example, you might go from having a salary of €40,000 per year to €20,000 when you retire. This may mean that you won’t be able to maintain the same lifestyle as when you were working.
One of the big advantages to starting a pension is that you get tax relief on contributions you make to your pension and on any growth in your pension fund up to a certain limit. This makes a pension a tax-efficient way to save for the future.
What are my options?
The next step is to decide on the type of pension that’s right for you. This depends on your personal circumstances, for example, are you an employee or are you self -employed?
If you are an employee you may be able to join a pension scheme provided by your employer. The advantage to an employer pension scheme is that your employer will usually make a contribution in addition to your own contributions, which increases the value of your fund. If your employer does not offer a pension scheme, then you must be provided with access to a standard Personal Retirement Savings Account (PRSA).
Personal pension plans and PRSAs
PRSAs are a type of personal pension policy that are open to anyone - employed, self-employed or those currently not working - to save for retirement. These are more flexible than traditional personal pension plans.
Personal pension plans are private pension policies managed for you by a life assurance company or investment firm. Anyone who is self-employed, or who can’t join an employer pension plan can start a personal pension plan.
All PRSAs and personal pension plans are set up as defined contribution plans which means the value of your pension at retirement is not guaranteed and will depend on the level of contributions you make, the growth of your pension fund and the charges you pay.
The Pensions Authority website allows you to personalise the pensions information on its site to your particular life stage so it is a good place to start to consider your options. It also has a handy pension calculator which helps you work out the amount you need to be paying in to reach your target pension - the pension you would like to receive in retirement.
Should I get financial advice?
If you are an employee, your first source of advice should be your HR Department. However, if you are self-employed or you want to get more advice, you should really think about getting financial advice, as it can be hard to know where to start. The CCPC has information to help you understand what sort of financial advice you might need, how to choose a financial advisor, and how much it may cost you.
Not everyone who calls themselves a financial advisor is authorised to give you financial advice. Some may even be working illegally. You can check whether an advisor is authorised by checking the Central Bank’s registers website.
What if I take a break from work?
If you have a pension plan with your employer, it is a good idea to find out how it might be affected if you were to change your working arrangements or take a career break.
Once my pension is set up am I off the hook?
Once you have set up your pension, it is important to regularly review your pension plan to see how it is performing, especially to make sure you are contributing enough to give you the income you need at retirement. This is particularly important if you have a defined contribution plan.
You should also check that your charges are in line with your pension contract. If you are a member of an employer pension plan, you will get a personal benefit statement once a year. If you have a PRSA, you will get:
- an annual statement of 'reasonable projection', showing the pension benefits that you can expect to get from your PRSA at retirement and
- a six-monthly report on the performance of your PRSA fund.
If you took out a personal pension plan after February 2001, your pension provider must send you a statement at least once a year. If you took it out before then, you should ask your financial advisor or pension provider for a statement if you have not received one.
So, no more excuses, if you haven’t yet made plans for your retirement, make a plan to get down to it. The sooner you start saving, the longer you have to build up a pension. And knowing that you’ll be financially secure when you retire (even if it is years away!) is a great feeling. To get more tips on managing your pension, check out the CCPC’s consumer website www.consumerhelp.ie.