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Should I Max out my pension contribution

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  • 22-11-2013 1:26pm
    #1
    not1but4
    Registered Users Posts: 262 ✭✭


    I am 26 and my company pays 6% into my pension which doesn't come out of my salary but if I pay 6% they will match this so they will end up paying 12% and I'll end up paying 6% out of my gross and I am paying 42% tax on roughly €7,000 of my salary.

    Everyone here in the office is doing it but it seems mad putting in so much money when I wont see it for 40 odd years.


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    #2
    srsly78
    Registered Users Posts: 7,157 ✭✭✭srsly78


    It does make sense to put money into pension instead of taking 42% tax hit on it. But not any more than that.

    Oh, it's 52% marginal tax rate by the way. Not 42%. You didn't include prsi+usc etc.


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    #3
    gordongekko
    Registered Users Posts: 5,301 ✭✭✭gordongekko


    Is it db or dc? What are the charges?


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    #4
    srsly78
    Registered Users Posts: 7,157 ✭✭✭srsly78


    Less than 52% that's for sure.


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    #5
    not1but4
    Registered Users Posts: 262 ✭✭not1but4


    gordongekko wrote: »
    Is it db or dc? What are the charges?

    Might be stupid question but what is db and dc?

    I have no idea what the charges are. All I know is that I am locked into this for the next year but have to decided now.


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    #6
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    If you can afford it you would be mad not to. Not only is it the most efficient thing to do with your salary but trust me that pension that seems so far away will be a godsend to you when you do decide to retire.


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    #7
    hmmm
    Registered Users Posts: 11,205 ✭✭✭✭hmmm


    D3PO wrote: »
    If you can afford it you would be mad not to. Not only is it the most efficient thing to do with your salary but trust me that pension that seems so far away will be a godsend to you when you do decide to retire.
    This. I know it seems a long time away, but putting money into your pension now might mean the difference between having the option to retire early, or drag yourself into work every morning in your late 60s. And once you get into your 30s you'll probably suddenly realise just how close those ages are.

    If they're matching 6%, effectively you're paying about 3% of your take home pay and saving 12% of your salary. You might not be mad not to do this, but you're losing out on a lot.


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    #8
    Paddy001
    Registered Users Posts: 724 ✭✭✭Paddy001


    Hi there,

    Just remember to bear in mind the 15% cap on pension contributions at your age. The employer contribution may or may not be included in reaching the 15% limit, this will depend on the type of scheme. I would recommend that you do it though, the funds will be in the scheme longer which should mean more growth and as you get older you may not be in a position to max out your contributions so it is advisable to do so now if you can.


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    #9
    Buzzliteyear
    Registered Users Posts: 25 ✭Buzzliteyear


    Max it 'notbut4'! You're getting a chance to double your money! And on top of that you get a tax break!! I don't know how efficiently your money will be invested but with those starting odds it doesn't matter in the short-term. In the long-term you can find out more about that. You may have to stay in your company fund for a minimum of 2 years to get a deferred pension benefit. Bot i don't really like the word pension. Its your investment! One thing you should look into to convince yourself of the benefit of this is the 'magic of compounding'. The longer the term the greater the impact. Its massive over 20 years or more. There is a very good example in Rory Gillen's book. Well worth looking into, especially at your age. Go for it!!!


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    #10
    Liam D Ferguson
    Registered Users Posts: 542 ✭✭✭Liam D Ferguson


    not1but4 wrote: »
    I am 26 and my company pays 6% into my pension which doesn't come out of my salary but if I pay 6% they will match this so they will end up paying 12% and I'll end up paying 6% out of my gross and I am paying 42% tax on roughly €7,000 of my salary.

    Everyone here in the office is doing it but it seems mad putting in so much money when I wont see it for 40 odd years.

    I'm not 100% clear on this from your post but if you're saying that 12% of your salary is €7,000 then you're on a salary of €58,000 ish and the figures look like this: -

    Employer pays €290 per month into your fund.

    You pay €290 per month into your fund.

    You get 41% tax relief on your contribution, so your take-home pay is only docked by around €171 per month.

    So €580 per month goes into your fund and it costs you €171 per month. :D

    It's not a complete giveaway. Some of the tax is deferred i.e. you may well be taxed on some part of your pension when you retire. There will be levies and charges taken from your fund along the way. But it's still a good deal.


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