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How pensions work

What’s a pension?

A pension is simply a saving fund with your name on it, used to pay for your retirement. Usually, you can’t access your fund until at least the age of 60.

Your money is invested on your behalf by a pension provider.  Typically a pension provider will invest your pension into company shares, bonds and property through an investment fund, in order to generate long-term growth.

To learn more, watch our interview with Bonkers.ie on what you need to know about pensions.

Do I need a pension?

Many people’s retirement plans involve several sources of income, including the State pension, pensions from work, other savings and investments, and personal pensions.

At around €12,700 per year, the State pension is there to provide a basic minimum income.  If you’re looking for more than that in retirement, you’ll need to contribute to a pension.  And if you don’t have a pension through your job, it’s especially important to consider how you will fund your retirement.

It pays to put money in a pension

Because the government want us to save as much as possible for retirement, there are substantial tax benefits to saving into a pension.  You can typically receive tax relief at your highest rate of income tax on your contributions.

If you’re a standard-rate taxpayer, that means every €100 of net pay you contribute will deliver €125 into your pension pot.  If you’re a higher-rate taxpayer, a contribution of €100 from net pay is worth €167 in your pension.

When should I start?

Although it’s almost never too late to start a pension, the earlier you begin paying into a pension, the better.

You’ll get the benefit of investment compounding and tax relief over a period of many years, meaning your investments do the heavy lifting for you, and you ultimately need to contribute less. In fact, a contribution of €100 per month when you’re 30 can have the same impact as around €450 per month when you’re 50.

 

Read on: Types of pension