“I don’t think people in Ireland have enough education about pensions.”
Starting a pension can seem like a daunting process for many people, but with the right knowledge to hand – and a good financial advisor – it doesn’t have to be, says Marie Kirwan, Senior Financial Planner at Zurich.
To de-mystify the process, we asked Marie the most common questions people have about starting a pension – from when to start to how to choose which fund to invest in.
1. How is a pension different to a savings account?
The main difference between a pension and a savings account, explains Marie, is the tax relief that pension funds get.
“Savings are money that has been taxed, whereas a pension is not taxed money,” she says. “It’s basically money you can get tax relief on. You can get tax relief on the way in, it grows tax free when it’s in there and then, when you go to into retirement, you can take some of your fund as a tax free lump sum.”
2. Why should I start a private pension?
The State offers a pension of €12,912 per year if you have enough PRSI contributions, but having your own private pension allows you to add further to this and plan for your future, says Marie.
“Say you’re working in the private sector and you never took out a private pension, you should be entitled to the State pension. That’s payable nowadays from age 66 – if you have enough PRSI contributions you can get €248.30 a week,” says Marie.
“Even if you’re only putting €50 or €100 per month into a private pension, it’s something. What I say is, ‘will you be able to live off the State pension?’ If you’re earning €70,000 and then you retire and have to live on €12,912 a year, there’s a huge drop in that.”
3. When should I start a pension?
When it comes to starting a pension, Marie says it’s never too early – or too late. “You’re never too young to start a pension. It doesn’t mean you need to put all your money in, but it comes down to affordability and your retirement income goal. The sooner you start, the sooner your pension is invested and compounding and the less you have to put into your pension later in life. Once you start, you’ll keep going.
4. How do I know how much risk to take?
The money you save into your pension is invested in funds, meaning its value has the potential to grow over time. By speaking to an advisor or financial broker – with many to choose from on the Zurich Advisor Finder - you can decide what level of risk best suits you and your situation.
“People worry about putting their money at risk,” says Marie. “Risk exists in any investment you make. I would suggest speaking with an advisor or financial broker to discuss the level of risk that you’re happy with.
“Everybody’s different, and that’s why you should get financial advice when deciding which funds to choose. Someone might think they should go for a low risk fund, but they might also have 30 years to go until retirement. Over time, inflation could eat into the purchasing power of their money and investing in a higher risk fund could actually be more appropriate.
Choosing the right fund, says Marie, depends a lot on the individual themselves. “If somebody was going to retire next year, maybe they should be low risk. But if you’re in your 30s and have 30 years until retirement, a higher risk fund might be more suitable.”
5. What happens if I move country or change job?
If you’re hesitant to start a pension because you might move abroad, or you don’t plan on staying in your current company for very long, Marie says it’s important to remember that pensions are flexible.
“You see it with a lot of multinational companies in Ireland, people are over to work in Ireland and they might decide to move back home,” says Marie. “They might not start a pension with this in mind, but once they get talking to a financial advisor, they’ll realise they won’t lose their pension if they do move. If they can’t move the pension to the country they’ve moved to, they could draw down from Ireland into their bank account. So your pension is always yours. You don’t lose it.”
There’s also the option to adapt your pension as your life changes, says Marie. “You can stop, start, increase, decrease it whenever you’d like. Sometimes people might say, ‘oh, I’m not going to stay in this job for a long time. I’m not going to set up a pension.’ But I wouldn’t let that hold anybody off either. Pensions can be flexible as well.”
The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at September 1st 2021 and may change in the future.