Your pension is probably the best long-term financial plan you can make. Why? Because the earlier you sort it, the better it gets.
But like so many financial topics you have to peel back layers of complication before you figure out what to do. Good news! We’ve done some peeling for you right here.
There are still a good few layers left, so talk to us to figure out the best route for you.
Because the government wants you to save for your retirement, there are three great tax advantages with the money you put into your pension. We’ve covered that here so this article focuses on the different pension structures open to you.
3 types of pension
You can save into 3 types of pension available in Ireland:
- Occupational pensions: usually through your employer
- Personal pension: usually for entrepreneurs and self-employed
- PRSA: a pension you can take with you from job-to-job, and to which an employer can contribute
(We’ve not covered the State pension which is there to provide for the basic necessities. It will not make you rich. You can read about the State pension here).
We’ve explained a bit more about each of these below.
This is the old-fashioned pension set up by employers to provide retirement benefits for their employees.
A lucky few (mostly in the public service) have ‘defined benefits’ which means you are due a specific amount of pension when you retire. Think of it as a guaranteed salary in retirement.
These days however ‘defined contribution’ is much more normal. The amount that goes in is defined, but the amount that is paid out as pension depends on investment performance over the years.
Occupational pension schemes can be great, with generous employer contributions, and even defined benefits.
But they were designed in an era where people stayed with one company all their life. So when you move on you face a choice of amassing a bunch of different pensions, or the complication of moving your money to another fund.
A personal pension (aka a retirement annuity contract) is for people who have income from self-employment.
The main advantage of a personal pension is that you have a lot of control over how you invest the money in your pension pot. That makes them a good option for people who are happy to spend the time managing their own investments directly.
Downsides include the fact that an employer can’t contribute to them, and there are no restrictions on charges from investment providers.
Personal Retirement Savings Accounts have been designed for an era where many of us have several jobs and want to take our pension with us.
Anyone can have one, an employer can chip in, and they are highly controllable. What’s more, with a Standard PRSA, there are caps on the amount the pension provider can charge you.
You can start a PRSA at any time, either as a standalone plan, or in addition to what your employer provides.
Pensions: when do I start?
Now you have a feeling on where to start, the big question is when. Whichever route you choose, starting now or boosting your contribution is one of the best steps you can take for your finances right now.