Starting a pension at 30

Merowig

Merowig wrote: »

Thanks a million for your help!

No problem at all, I'm not in the industry but it's an interest/hobby of mine and I did extensive research a while ago when shopping about myself.

Merowig

All PRSAs must have a "Default Investment Strategy" (page 26 http://www.pensionsauthority.ie/en/Publications/Information_Booklets/PRSAs_-_a_consumer_and_employers'_guide.pdf ) - though you always have additional options - you can allocate a % to different funds in different markets.

Am checking now with Davy directly about minimum contributions and if contributions can be paused at any time - and am waiting for the pensions authority to come back to me with the requested overview.

So far it looks it will be either one of the low cost options from Zurich or Irish Life - or a Vanguard or Black Rock ETF through Davy.

In regards to long term performance of the general stock markets
http://moneyboss.com/stock-market-returns/
http://www.finfacts.ie/stockperf.htm

With the historical low interest rates we have currently - which look to stay with us for a while - I don't see any alternative to equities.

Merowig

Merowig wrote: »

............
So far it looks it will be either one of the low cost options from Zurich or Irish Life - or a Vanguard or Black Rock ETF through Davy.

In regards to long term performance of the general stock markets
http://moneyboss.com/stock-market-returns/
http://www.finfacts.ie/stockperf.htm

With the historical low interest rates we have currently - which look to stay with us for a while - I don't see any alternative to equities.

I've been at a few investment seminars so far in 2016, all of the speakers mimic your feelings. They all mentioned that Gov/Cor Bonds are effectively untouchable due to low returns. For me the benefit of equity alternatives is the initial amount is largely protected.

Whenever everyone is singing from different hymn sheets but saying the same thing I do wonder is it perhaps wise to think about staying away the herd to an extent (even a small % extent)

For anyone starting a pension it matters little what the market does shorterm though, always important to remember that.

Merowig

Chances are that at some point we will see again a larger crash of the stock markets - but that included makes shares still more attractive than bonds over the long term. People who didn't sell during 2008 are back into the profit zone afaik.

For German bonds you have even a negative return - and for me it is not quite clear if the whole Euro - or even EU project will not unravel at some point to some degree.

My fiancee owns two appartements in her home city and I am paying a mortage for a house in my home country - so am not having all my eggs in one basket.

Merowig

Merowig wrote: »

Chances are that at some point we will see again a larger crash of the stock markets - .........

Quite likely.

Having some of your fund on deposit or in bonds makes it available to buy at the crash price in the future.

billyhead

Sorry for going a little of topic OP but at 30 years of age how much would be an ideal amount to pay into a private pension such as an AVC per month or year

billyhead

billyhead wrote: »

Sorry for going a little of topic OP but at 30 years of age how much would be an ideal amount to pay into a private pension such as an AVC per month or year

Hard question to answer, sane financial advisor will ask you what pension size do you want, % of retirement income etc etc etc.

They'll than baffle you with figures and projections that include inflation measures etc etc, awful stuff.

I'll say the following at the risk of being taken apart, ballpark figures ignoring inflation and speaking in todays figures (inflation takes care of itself as your pension contrib should increase with your wages imo)

State pension is circa €11k/annum. If you are 30 now and plan to retire at 68 you'll need to amass about €600k of a pension fund to end up grossing €30k/annum when you retire including the state pension.

So......... we'll be conservative ish and use a 5% per annum growth (after fees and with zero contribution fees).........

€500/month for your 30s (20%)
€625/month for your 40s on to 68 (25%)


that's based on a €30k/annum salary.

When it comes to it I doubt too many will/can throw over 25% of their income into pension in their 50 and 60s so I've just used 25% from 40 on.

That's a horrendously crude attempt at answering a very open question

billyhead

Augeo wrote: »

Hard question to answer, sane financial advisor will ask you what pension size do you want, % of retirement income etc etc etc.

They'll than baffle you with figures and projections that include inflation measures etc etc, awful stuff.

I'll say the following at the risk of being taken apart, ballpark figures ignoring inflation and speaking in todays figures (inflation takes care of itself as your pension contrib should increase with your wages imo)

State pension is circa €11k/annum. If you are 30 now and plan to retire at 68 you'll need to amass about €600k of a pension fund to end up grossing €30k/annum when you retire including the state pension.

So......... we'll be conservative ish and use a 5% per annum growth (after fees and with zero contribution fees).........

€500/month for your 30s (20%)
€625/month for your 40s on to 68 (25%)


that's based on a €30k/annum salary.

When it comes to it I doubt too many will/can throw over 25% of their income into pension in their 50 and 60s so I've just used 25% from 40 on.

That's a horrendously crude attempt at answering a very open question

Thanks for the insightful info. I started an AVC plan (I am a public sector employee) when I was 21 and put on average €140 a month into the plan since then. Based on your figures I should more then double this?

billyhead

billyhead wrote: »

Sorry for going a little of topic OP but at 30 years of age how much would be an ideal amount to pay into a private pension such as an AVC per month or year

billyhead wrote: »

Thanks for the insightful info. I started an AVC plan (I am a public sector employee) when I was 21 and put on average €140 a month into the plan since then. Based on your figures I should more then double this?

Quite likely not, my figures were for a 30 year old with no pension aside from what I proposed crudely

If you are putting €140/month into an AVC plan for the last 9 years you presumably have a public sector pension too

The stuff I typed mightn't be at all applicable to you.

Looking at the €140/month for the last 9 years, that's €15k at least of a fund (unless it was very very badly managed or eroded by high management fees).

From now to 38 years time assuming 5% growth per annum post expenses and no further contribution that cash alone should accumulate to a fund of €90k.

Continue the €140/month contribution and at the 5% growth etc post expenses/fees and that should end up as €270k. A €270k fund would get a 4% annuity so that's just shy of €11k/annum and you get the state pension too.

The past 9 year's contributions (at 5% growth etc) will end up as 33% of the total, the next 38 years €140/month will account for the other 66%.

Now why I can't say should you double the contribution is twofold
- I don't know what you want at retirement
- you presumably have a pension anyway that you are complementing with the €140/month AVC

The thing to be mindful of is that my 5% etc is only achievable is 50% of the AVC fund is invested in equity, if you selected the low risk option (which most of us do when we tick those boxes) you might well have the bulk of your funds is state guaranteed but very low growth options.

Merowig

Use that calculator
http://www.pensionsauthority.ie/en/Calculators/Pensions_Calculator/

If you can afford it try to increase it up to the maximum for the tax relief
http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_contributions/

billyhead

I will be getting a pension with the job. The AVC is with New Ireland Assurance and after a few months starting the job 13 years ago a rep sold me a pension plan and have been paying into it ever since.

billyhead

billyhead wrote: »

.......The AVC is with New Ireland Assurance.......

My pension from days gone by was with them, stopped paying into it in 2007, just transferred it out a few weeks ago.


My fund had grown by just under 25% in 8 years.

Merowig

I joined via my company a New Ireland PRSA in 2008 (they paid all the contributions) - contributions were just for a couple of months till my employer changed the pension provider. The fund more than doubled since then.

billyhead

Augeo wrote: »

My pension from days gone by was with them, stopped paying into it in 2007, just transferred it out a few weeks ago.


My fund had grown by just under 25% in 8 years.

Would that be seen as a good return in terms of a pension investment

billyhead

billyhead wrote: »

Would that be seen as a good return in terms of a pension investment

Not great imo but to be fair the 2007/2008 crash occurred after all contributions were made.

If I was impressed with them I'd leave the money there, which I haven't done

The thing with all those sort of arrangements is that it's very passive, they leave it as you wanted it via the ticky box questionnaire filled in upon set up, send out an annual update speel and that's that unless you poke and prod. Pensions games is a weird industry, people spending thousands/annum and getting very little advise/service in return.

RedXIV

Merowig wrote: »

Use that calculator
http://www.pensionsauthority.ie/en/Calculators/Pensions_Calculator/

If you can afford it try to increase it up to the maximum for the tax relief
http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_contributions/

One thing I don't really like about that calculator is that it assumes the state pension is not going to change and takes it into account for your figures.

I found this one which highlights just how your pension plan is affected by the current state pension:
http://www.mindthepensiongap.ie/

RedXIV

RedXIV wrote: »

One thing I don't really like about that calculator.........

Accepting the assumptions regarding growth etc most of those online calculators are very much worst case scenario territory as they are based on an annuity purchase upon retirement.

The annuity purchase is a huge pocket liner for providers, people would be better off in most cases going with other options

Merowig

RedXIV wrote: »

One thing I don't really like about that calculator is that it assumes the state pension is not going to change and takes it into account for your figures.

I found this one which highlights just how your pension plan is affected by the current state pension:
http://www.mindthepensiongap.ie/

Hard to make assumptions how the state pension changes. Every PRSA / Pension scheme has to send you once a year a projection what would you get in the future.


Seems most providers have their version of a calculator online as well e.g.:
http://www.zurichlife.ie/pensions/pension-contribution-and-investment-calculators/irish-pension-calculator/


I might transfer in the far future my PRSA and my company scheme to a pension scheme abroad should I find the annuities I could get here unattractive.

Bank of Ireland: Nicola

Hi robocode, Nicola here from the Bank of Ireland Talk to forum - just noticed your post.

The first thing to do, for anyone considering their pension, is to sit down and have a chat with a qualified pension adviser; they'll go through everything with you and discuss all the available options.

There are a number of factors that would need to be considered so a pension adviser can make sure any advice or recommendations they give you are tailored to your own individual needs, circumstances and retirement goals.

We’ve a handy retirement planning calculator here on our website that will give you a quick estimate.

If you need to get any more information or have any questions, feel free to drop by our Talk to forum.

Thanks
Nicola

newacc2015

Augeo wrote: »

The Zurich product is competitive cost wise, but it's not overly flexible. Also you are relying on

"Default Investment Strategy" that targets growth in the early years but changes to a lower risk portfolio as retirement approaches.
A more individualised profile can be designed through investing in a selection of the funds available (PDF - 93k). The funds are listed as 'Standard PRSA' (in blue)"

Like many funds they are taking the view that growth should be targetted in the early years so they'll invest the bulk in equities, see average returns or above average and than try to get out as retirement approaches.

So if you are 30 their plan is the wait until you are 50/55 to allocate funds to lower risk, great tactic if the market doesn't lose lots of value at any stage in the next 20 years.

Those LA broker folk are getting "Out of this 1% annual management charge LABrokers are paid a commission of 0.25% by Zurich." to manage a fairly crude strategy.

In the Zurich document https://www.zurichlife.ie/bgsi/servlet/DocArchServlet?docId=PN_PRSA_BR&docTag=&randint=H86F&docType=.pdf they've a case study of a 47 year old self employed dentist that they've set up with a PRSA, seems a strange strategy as he should be able to set up an Executive Pension Plan and get tax relief on PRSI and USC as well as the PAYE tax relief a PRSA offers.

Managed funds are a bit of joke. They never constantly beat the market. An S&P500 index will over 3 years will beat any financial advisor. With a managed fund,you are paying a fee to someone who cant actually beat the market year after year.

Warren Buffets wife is in her sixties and 90% of her pension is in stocks. He advises people to keep most of their pension if not all of it in shares. Bonds arent actually that safe when you look at them versus the S&P 500. Plus their return is pretty horrific. Where as the S&P 500 is heavily diversified and has little risk overall

The Financial crisis of 2008/2009 was a once in a lifetime event. I think was estimated to occur once in 83/88 years. It is highly unlikely it will occur in the next 50 years, as the financial industry is being heavily reformed.

Merowig

newacc2015 wrote: »

Managed funds are a bit of joke. They never constantly beat the market. An S&P500 index will over 3 years will beat any financial advisor. With a managed fund,you are paying a fee to someone who cant actually beat the market year after year.

Warren Buffets wife is in her sixties and 90% of her pension is in stocks. He advises people to keep most of their pension if not all of it in shares. Bonds arent actually that safe when you look at them versus the S&P 500. Plus their return is pretty horrific. Where as the S&P 500 is heavily diversified and has little risk overall

The Financial crisis of 2008/2009 was a once in a lifetime event. I think was estimated to occur once in 83/88 years. It is highly unlikely it will occur in the next 50 years, as the financial industry is being heavily reformed.

There are exceptions but I agree that the majority of the funds are not beating the market. I have the same preferance for equities - though I believe that a similar crash to 2008 is possible in our life time.
Could be another bubble which bursts, or could be a shooting war between China and the US, slow collapse of the EU, etc - who knows what the next Black Swan event will be - but even with that included shares are still the most profitable investment over long time periods.

newacc2015

newacc2015 wrote: »

Managed funds are a bit of joke. .............

Cheers, I know
http://www.boards.ie/vbulletin/showpost.php?p=99099937&postcount=23

keane2097

If I might interject here on a slight tangent...

I have a pension currently into which I put 4% gross while my employer puts in an additional 8%. I have two questions on this, one simple one a bit more involved.

1. Is the 15% limit for tax relief up to age 30 inclusive of the employer's contribution or is that measured off my contribution alone?

2. I'm interested in investing some of my income in a simple three fund portfolio. Do people recommend maxing out the pension tax relief before starting anything like this sort of investment or is there an argument to be made for siphoning off some income into taxable investments like this?

It would seem maxing out the tax relief is the obvious way to go but I'm a bit leery about the notion of locking up funds until retirement age if there's an option I can take which is still financially savvy but allows me the flexibility to access the cash should I want/need to. I know the tax situation with investing in things like ETFs isn't great in Ireland so presume the advice will be to max the pension...

keane2097

keane2097 wrote: »

........... Do people recommend maxing out the pension tax relief before starting anything like this sort of investment or is there an argument to be made for siphoning off some income into taxable investments like this? ........

Yes, especially if you are paying tax at the higher rate, at 12% you are almost there anyway.

Taxable investments are worthwhile with your net money as they tend to outperform other options (Bank savings accounts etc).

keane2097

Augeo wrote: »

Yes, especially if you are paying tax at the higher rate, at 12% you are almost there anyway.

Taxable investments are worthwhile with your net money as they tend to outperform other options (Bank savings accounts etc).

Hi Augeo, thanks for that. I turn 30 at the end of the year so will bump up to the 15% (4 ->7 for me) now and then start putting aside the money that would make this up to 20% to get used to working with the remainder.

keane2097

keane2097 wrote: »

........ then start putting aside the money that would make this up to 20% to get used to working with the remainder.

You could put it in a

keane2097 wrote: »

....... in a simple three fund portfolio.............

9 months to year end, that 5% will be about 2 weeks wages

keane2097

Augeo wrote: »

You could put it in a

9 months to year end, that 5% will be about 2 weeks wages

I was under the impression that the Vanguard ETFs had a minimum initial purchase but it appears they don't... Great!

I've got a DeGiro account set up but haven't deposited any funds to it as was trying to decide whether to put the cash I'm putting aside into the pension or into the investments, but I must actually pull the trigger now.

Given the taxation situation it might be prudent to invest in ETFs that don't pay a dividend but that accumulate. Makes things a bit tidier return wise and over 4/5 years should line the pocket more if the fees are comparable.

RedXIV

See this is the stuff I'm researching now, I maxed out my pension contributions and looking at the following book sent on to me:
https://www.moneyforsomething.org/book/

Which basically says start investing in ETF's now, I've been trying to figure out my next steps. Been trying to find out if there is a course or any other reading material out there for it.

RedXIV

RedXIV wrote: »

See this is the stuff I'm researching now, I maxed out my pension contributions and looking at the following book sent on to me:
https://www.moneyforsomething.org/book/

Which basically says start investing in ETF's now, I've been trying to figure out my next steps. Been trying to find out if there is a course or any other reading material out there for it.

This is a very good starting (or even finishing spot once who allow for being Ireland EU based and not US)

keane2097 wrote: »

........... three fund portfolio. ........