The beginner’s guide to starting a pension

“Think about your aspirations for when you retire. What do you want to do? Do you want to travel, start new hobbies?”

Whether you’re new to the workforce or you’re years into your career, it’s likely that you’ve thought about starting a pension at some stage. If it’s something you’ve yet to do, the prospect can be a bit daunting – but it doesn’t have to be, says Kristen Foran, National Sales Director at Zurich.

“Starting a pension doesn’t have to be complicated,” says Kristen. “There is a huge amount of advisors and financial brokers available to help. They’re more accessible than they’ve ever been before. There’s no reason to not find a way to get to a pension.”

So, where exactly do you begin when planning for your future? Kristen talked us through the whole process, from how to start a pension to how much to pay into it.

First things first, what exactly is a pension?

Understanding what a pension is is pretty simple, says Kristen. “A pension is basically a savings plan. The idea is to save money into the pot and this is the money you use to help you live on when you retire.” This money is then invested in funds, allowing it to grow over time. 

“The State gives you a pension if you have enough PRSI contributions,” she explains. “The maximum State pension at the moment is just under €13,000 per year. So the idea is to save for your own private pension separate to the supplement that they give you.

I already have a savings account. How is a pension any different?

While a pension operates as a savings plan, there are many benefits to having one rather than just putting the money away yourself into a regular savings account every month. “There are lots of benefits to starting a pension,” says Kristen. “The main benefits really are that you’re prepared for the future, and it can give you flexibility as to when you want to retire. You might decide to retire early, or that you never want to retire. It’s whatever works for you.

On top of that, pension contributions offer tax relief. “Having a pension is the most tax efficient way of saving in Ireland right now,” says Kristen. “When you save into a pension you can normally get tax relief, at your marginal rate. What’s more, the returns in a pension fund roll up free of tax. When you retire, you can take up to €200,000 of your funds tax free, and the remaining fund is then used to provide an income for you in retirement.”

I don’t have a lot of cash to spare. Is it really worth my while starting a pension?

When it comes to deciding how much to contribute to your pension each month, Kristen advises starting with whatever you can. “Start it off as quickly as you can, but start it off at a rate that you can manage. Pensions benefit from the idea of compounding.

How do I know which fund to choose?

The money you save into your pension is invested in funds, allowing you to accumulate even more savings over time. Choosing a fund is something an advisor or financial broker will help with, made even easier through the Zurich Advisor Finder.

“You have to look at how much risk you want to take. You’re going to be investing this money from now until you retire, how much risk do you want to take with it? People might be risk averse, but if you’ve got a really long time to invest before you retire, you may be able to afford to take more risk because you’re doing it for a very long time.”

How do I get started?

If you’ve decided to start a pension, Kristen recommends first speaking to your employer to find out what they offer. “Most employers will do your pension payment through salary deductions, so you won’t even notice it’s gone. It’s like a direct debit.

If your employer doesn’t pay into an employee’s pensions, they’re still obliged by law to offer you access to a PRSA (Personal Retirement Savings Account), says Kristen. 

“The longer you wait to start your pension, the harder it’s going to be to build up the proper funds you need for your retirement. The key really is to start with whatever you can afford. The more you’re putting in all the time, the more it will grow without you even realising it.” 

Talk to a financial advisor and prepare for your future today with the Zurich Advisor Finder. Find out more about starting a pension here, and use the pension calculator to help plan your retirement.

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at 31st July 2021 and may change in the future.