Should I get a pension ?

twinkletoes

Thinking about getting a pension(prsa), a standard no risk one, but i've also just started a mortgage and read somewhere that its not good to start a pension when you have large out goings that your money should go towards your mortgage???? However I am 31 and other advice out there says to start a mortgage sooner rather than later - has anyone any advice for me ?

MG

I'd advise you to do up a budget of your likely costs. Include your mortgage costs, living expenses etc and then give yourself a reasonable allowance for clothes, CDs, going out, holidays etc. Decide on the lifestyle that you want to live and factor that in. Then leave a little aside for emergencies and whatever is left over could be put into a pension as its a tax efficient way of saving (esp if you are 42% rate taxpayer). The disadvantage is that you don't have the cash for the here and now.

Yes a pension is important but your current living needs are more important. In the first year of a mortgage, it can be especially difficult. But remember that the amount you put in can be flexible so you could start off with a small amount and add to it when you can afford it.

Zulu

yes.

Dingatron

Like MG said, you should do a budget and see how much you can afford. While not too important now it probably will be by the time you need one.

threebeards

What I found was the worst thing about starting a pension was just going and doing it. Once I'd started I was glad I'd done so and after a while you don't even notice it. It's like starting your mortgage, you feel that the first few repayments are putting such a hole in your net income but after a few months you become so used to it that it's not an issue. As MG said, it's so tax efficient, especially if you're on the higher rate of tax.

Sleipnir

My boss used to work in pensions and he says to everyone
"Whatever ever age you start paying into a pension, half your age is what percentage should be going into it"

So if you're 30, 15% is how much you need to put into it per month.
If you're 40 when you start your pension, 20% of your salary.
(Not that I do!)

shoegirl

Sounds like a very good time to start saving for a pension.

Only advice I would have is that a PRSA is not "low risk." Only a defined benefit pension is low risk. Your best bet is to start a pension with your employer if they match contributions.

ToxicPaddy

shoegirl wrote:

Your best bet is to start a pension with your employer if they match contributions.

Id agree with this, but it isnt always the case.. most use this as a perk of the
job. Up until about 5 years ago, the company I now work for never
contributed to any employees pension, but because the IT market began to
get so competitive as far as recruiting was concerned, they had to use this
as one of a series of perks to attract employees.

Been part of the company pension scheme now nearly 4 years and just doing
some basic maths although its not a huge amount, its good to know its there.

I would definitely advise anyone who doesnt have a pension to start one asap
as you will need one in later years especially the way the cost of living in this
country has rocketed. Imagine trying to survive on a welfare payments that
todays OAP's get.. :eek:

What is the biggest percentage of your income that a pension can be before
you're taxed on it? I always thought that anything more than 15% and you're
taxed on this? Maybe Im wrong though, anyone care to enlighten me?

Tox

RainyDay

Don't fall for all the advertising hype. You need to do some sums & work out the right decision for yourself. Note the following;

- Once you put cash into your pension, you won't see it again until you retire - no matter what happens. So if you lose your job, or have a sick family member, your pension fund is of no use to you.
- There is little point routing your spare cash into a pension which might return you 5% (after deducting fees in the region of 5% for a standard PRSA) while you are paying out 3%-4% on your outstanding mortgage. The 'magic' compounding effect of your pension investment applies in reverse to the compound interest you are paying on your mortgage.
- If your employer offers to match your contributions, then it is almost certainly a 'no brainer' to take up this offer to the maximum, if you can possibly afford it. Matching contribution means an immediate 100% return on your investment. The only catch is my first point above.
- There is no tax break for pension contributions. There is a tax deferral and the opportunity to benefit from tax-free growth. So if you have significant pension and other income in your retirement, you will be paying tax on your income at that stage.
- Most PAYE employees have little flexibility about what to do with their pension fund when they retire. You can get a tax-free lump sum (25% of your fund iirc) and you must use the remainder to purchase an annuity (i.e. guaranteed income each year for life, regardless of whether you live for 1 year or 30 years after you retire). Annuity rates are quite poor these days.

I realise this has come across quite negatively - I'm playing devils advocate a bit here to get you thinking about the other options. Personally, I'd want to be fairly comfortable that my mortgage is under control and I could survive for 6-12 months of unemployment without putting my house at risk before putting funds into my pension. In my own case, my mortgage is quite modest by today's standards as we bought our house 10 years ago. I've been getting the benefit of the maximum employer matching contribution for a few years now, and I've just started putting in extra money in AVC's this year.

If you take out a PRSA, watch the fees very carefully. The maximum level of fees permitted on the 'standard' PRSAs is actually quite high, up to 5% bid/offer spread (aka entry charge). You may well be able to get lower charges from a nil commission broker like Liam Ferguson or LA Brokers.

De Rebel

RainyDay wrote:

- Once you put cash into your pension, you won't see it again until you retire - no matter what happens. So if you lose your job, or have a sick family member, your pension fund is of no use to you

This is a bit ambiguous. The pension fund is intact, it is still every bit as useful as it ever was going to be and it still meets its original objective.

What you mean to say is that the pension fund is of no immediate use.

Not being pedantic, but i know you wouldn't want to mislead readers into thinking that the pension fund is somehow lost because of unemployment.

De Rebel

RainyDay wrote:

.........from a nil commission broker like Liam Ferguson........

You sure about this? I can't find anything to suggest that he is a nil commission broker. In fact on a number of pages (e.g. the Canada Life PRSA page ) wording such as "Canada Life currently do not pay commission on contributions below €125.00 per month, so if you wish to contribute less than this to a Canada Life product, we will charge you a fee" certainly implies that commission is paid by the insurer and accepted by this broker on larger monthly premiums (in the case of the example, on contributions greater that €125 per month).

De Rebel

RainyDay wrote:

.......a nil commission broker like LA Brokers.

I would also have question about this one. Details on the website are sketchy, but there is reference to "an annual management charge that decreases from 1% to 0.85% as the fund increases" It may be true that there is "nil commission", but is this not commission by another name?

It also need to be pointed out that this supplier is offering PRSA's on an execution only basis (i.e. no advice) and, although the supplier is a "multi-agency intermediary" only Irish Life PRSA's are offered. I would question the advisability of directing the original poster to such a service. Let me expand.....

If I wanted an Irish Life PRSA at the lowest possible initial cost, and wanted no advice, no assessment of my current financial position, and no consideration of the suitability of alternative offerings, then this may well be the best broker for me to visit. However given the original poster's starting point, (a vague notion that a pension is a desirable thing, but no particular idea on how to determine the best way to proceed), trotting into an execution only service that offers a single product is unlikely to be the best way to proceed.

De Rebel

With reference to my two immediatly previous posts, i'd like to declare that i work in the financial services industry, although not in a client facing position.

While I do not know either of the brokers mentioned in person, I have no reason to doubt that they are honourable businesses who do business in a legal and ethical manner. My sole reason for posting is to ensure that rainyday's advice does not prove misleading.

De Rebel

ToxicPaddy wrote:

What is the biggest percentage of your income that a pension can be before
you're taxed on it? I always thought that anything more than 15% and you're
taxed on this? Maybe Im wrong though, anyone care to enlighten me?
Tox

Its age dependent:

Under 30 years - 15%
30-39          - 20%
40-49          - 25%
50 and over    - 30%

RainyDay

De Rebel wrote:

This is a bit ambiguous. The pension fund is intact, it is still every bit as useful as it ever was going to be and it still meets its original objective.

What you mean to say is that the pension fund is of no immediate use.

Agreed - What I should have said is that in such circumstances, the pension fund is of no use in the short/medium term. It will still have value come retirement.

In the interests of fairness, let me declare a mild conflict of interest also. Liam Ferguson is a friend of mine, and I've met John Geraghty from LA Brokers on a couple of occasions too.

However, my point in posting their names/sites was not to gather business for either of the two individuals. My description of 'nil-commission' was not entirely accurate - I should have used the term 'discount broker'. AFAIK, both do offer nil-commission deals on certain products in certain scenarios.

My point in posting their names/sites was really to point out alternatives to the original poster. The worst thing that JanMurphy could do would be to drop into their local bank and look for pensions 'advice'. They will not get any advice - they will get a salesperson selling products from one company with high commission rates built-in. The 2nd worst thing JanMurphy could do would be to do to a 'typical' broker. They would not get independent advice. They would get a salesperson selling a range of products and will probably end up buying the product that maxes the salesperson commission rather than their own return.

I accept your rationale in pointing out the possible dangers of going for an execution-only discount broker. I'd guess that Jan would be better working out his/her options in this thread (or over on Askaboutmoney.com) rather than going to any broker for 'advice'.