Mary Fitzpatrick • 18 Oct 2018
Starting your Pension Plan
Choosing to start a pension plan is a very important step in your life. It’s one of the ways to secure your future and ensure the lifestyle you’ve planned for once your working life is over. If that’s not a good enough reason, a pension plan is one of the smartest ways to save as there are valuable tax incentives available on your pension contributions (subject to revenue limits).
The earlier you start your pension plan the better but it’s never too late. There are a range of pension solutions to suit everyone, no matter what your stage in life and we at CMCC Financial Solutions are here to help you get your pension plan journey started.
Most of us spend little or no time thinking about our retirement when we are younger, but that’s the very time to take action. The earlier you start your pension plan, the more choices you have and the earlier you’ll have access to these choices. Crucially, the sooner you start contributing to your pension plan, the longer it has to potentially grow which could make a big difference to the size of your savings at retirement age.
Your pension plan should at all times be flexible. You should ensure your plan allows you to stop paying contributions should you need to, and increase or decrease your contributions at any time. It is better to start saving into your pension plan now, even if you put in less than you’d like to. The flexibility to change how much you save towards your retirement should always be allowable with your pension plan.
As stated earlier, one of the favourable things about saving for your retirement is the generous tax relief available of up to 40% for a higher rate tax payer (subject to revenue limits). In addition your pension fund does not pay any tax on investment gains made during your pension journey. On retirement you can take a cash lump sum that is tax-free (subject to revenue limits). You’ll want the remainder of your retirement fund to see you through the rest of your life, so it’s important to consider options that will suit your personal circumstances best.
Key thoughts to consider when starting your Pension Plan
(1) Can you rely on the state pension?
The state pension is helpful but it’s not going to give you a comfortable life on its own. The state pension is funded by taxes paid by Ireland’s workforce but Ireland’s population is ageing. As a result, in the future there will be more retirees sharing a smaller pot and in recent years we have already had the state pension age moved to age 68.
(2) How much to save?
This is, perhaps, the single most important consideration. Of course, it’s up to you but it usually depends on these main factors – when you would like to retire, what lifestyle you would like in retirement and how much you can afford to save? The pension contributions you make to your pension plan will attract tax-relief at your marginal rate.
(3) What’s your attitude to investment risk?
All of your pension contributions will be invested in an investment fund or a combination of investment funds, with a view to growing your retirement pot. How that money is invested depends on how much investment risk you are prepared to accept. Everyone’s attitude to investment risk is different and choosing your investment strategy will involve deciding on the level of return you are looking for and balancing it against the level of risk you are comfortable with. We call it your risk profile and this forms an important part of your pension plan journey.
Everyday we at CMCC Financial Solutions meet customers from all walks of life, who for whatever reason start their pension plan later than they perhaps should have. In fact, many of our customers tell us they wanted to start earlier but didn’t know how to start or who to talk to. Take the next step and talk to us to get the best advice possible for your situation and ultimately your pension journey.