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Client Centre

Pensions - why bother?

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Living; or existing...

Here we explain the very basics of pensions and how they work and, more importantly, why you should or shouldn’t contribute towards a pension.

 

  • What is a pension?

In a nutshell, a pension is a fund that will pay you an income and/or lump-sum, when you retire.

 

  • How does it grow?

Your pension fund will grow by investing your money in a mix of funds, with a pension provider, that suits your own, individual attitude to and capacity for, investment risk. We use a clever questionnaire to explore this important aspect of pension planning with you further. 

 

  • What about tax-relief?

Many people ask us why there is tax relief on contributions to a pension plan. Well, the simple answer is, you are deferring part of your income from today in order that you can get an income in the future, so it’s only right that you should not pay income tax on that part of today’s “income”.

How much tax relief? – Well, if you are paying the high rate of tax then you get 40% relief on contributions. (Up to certain limits.) The 20% rate applies if you are paying the lower rate.

Another tax benefit that is often overlooked is the fact that your money also grows tax-free – this makes your fund grow much faster

If, for whatever reason, you do not qualify for tax-relief on your pension contributions then a pension, per sé, may not be for you. However, there may be other, better ways, of funding for your retirement – talk to us for advice on this.

  • Will the State Pension be enough to live on when you retire?

In some cases it may well be; for others, the “financial shock” of suddenly having to live on around€230 per week is a pretty scary prospect. During the so-called Celtic Tiger years when house prices rose dramatically, for many people, the only way onto the property ladder was by taking out a mortgage for thirty, or even forty, years. For many, this means they will still be paying off their mortgage when retired.

If you are happy to exist on the State Pension then maybe there is no need for you to pay into a retirement fund. (That also assumes that the State Pension will be indexed-linked until you retire (Perhaps a dangerous assumption.) and that you will have enough PRSI Contributions made to qualify for the full State Pension.)

 

  • What type of pension is most suitable for you?

There is no simple answer to this question as it’s very much a case of “one size/type does not suit all.”

There are three main types of pension; Personal Pension, PRSA and Company Pension. Which one is best for you very much depends on your circumstances and that’s where we can help and advise you; so please feel free to give us a call.

 

  • How much should you be putting into your pension?

Again, this is where we can advise you but, really, it depends upon how long you have before retirement and how much you want to get out of your pension when you get there

 

So, pensions, are they for you...??

Why not contact us, on a “no-obligation” basis and we will work with you and help you find out! And don’t forget, your first consultation is free!

 

LASTLY: If you liked this article please SHARE it with your friends and family and thank you for taking the time to read it.

 

WARNINGS: The income you get from investments may go down as well as up. The value of your investment may go down as well as up. This benefit may, in some cases, be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance.

 

Steadfast Financial
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