Pension Planning - Don't Put It Off!
Updated: Sep 5
It's hitting peak holiday season so it probably seems like a strange time to be talking about pension planning. But realistically, when is it a good time? In reality, it's something many people put on the long finger.
It should be a no brainer to be making contributions to a fully approved Pension Plan. Firstly, it is the most tax efficient way of saving. Not only do you get full tax relief on contributions you make up to particular limits but also any investment return you achieve on for your pension plan are tax free and then part of the savings you have built up can be taken as a tax-free lump sum on your retirement.
In a perfect situation we would all start a pension plan from the day you receive your first pay cheque. Not only does that not happen for so many reasons but it is estimated that one in three workers have no private pension plan. This situation is even more stark amongst the self-employed where the temptation to keep putting off the decision to do something is even greater. The good news, however, is that it is never too late to start.
It can be difficult to make the decision to lock up your contributions in a pension plan but no matter when you start it is always worth doing. Ask yourself the question if, when you reach retirement age, will the State Pension, currently €253 per week and payable from age 66 be enough? If the answer is the obvious no, then you need to do something. Here are a few tips to help you to decide what you need to do. 1. Start as soon as you can
Make no mistake, the starting point is the most important point when it comes to pensions.
Of course, it is hard for someone in their 20s to think about saving for their retirement - and it is made even harder in a fraught economic climate.
But the sooner a pension is started, the less a person will have to save. Someone who is 25 and takes out a pension is saving themselves a world of financial pain in the years ahead. If they wait until they are 40, they will need to put aside over 4 times to get themselves the same return.
2. Never panic though
More than 50 per cent of the population does not have a private pension.
While it is better to start a pension early, that doesn't mean it is ever too late to start, it simply means that the later the start the more you may need to put in.
Counterbalancing the late start is probably a greater degree of affordability as you get older.
3. Mix things up
Regular monthly payments are the least painful way to build your pension fund.
Don't just decide on a sum you're comfortable putting into it and leave it at that. Change the payment amount as your life circumstances change.
If you get a pay rise you can increase it, if you have children you can reduce it (but only slightly). If you are due a bonus you can put in a once off lump sum.
4. A necessity, not a luxury
Putting pension money aside for your future retirement should be considered an unavoidable outgoing and not a luxury.
It is right up there with a mortgage, food, clothes and electricity as one of the things people need to realise that they cannot do without.
5. Keep tabs and get good advice
You should check your pension plan regularly.
Having access to a good adviser who will steer you through the process and carry out regular reviews with you is vitally important. This is what we do.
If you need some help in planning for your retirement, please just