Pensions 101: Understanding the basics and how to get started

When it comes to securing a stable financial future, pension planning plays a crucial role. And yet, it’s a subject that many of us try to put on the back burner - whether it’s the jargon, the number of options available, or simply feeling retirement is too far away to worry about.

According to a survey by iReach Insights on behalf of Zurich, which examined the attitudes of adults towards paying into a pension, 51pc say their biggest challenge in starting a pension is their other financial priorities. And 36pc of respondents said they don’t know enough about pensions*.

However, with a little guidance, you can set yourself up for a comfortable retirement. While it may seem overwhelming at first, by breaking down the basics and taking a proactive approach, you can navigate the world of pensions.

Wayne O’Neill, Executive Financial Planning Manager at Zurich, says starting your pension journey now is pivotal for a secure future.

The earlier you start planning for your pension, the more likely you are to maintain the lifestyle you desire in retirement, says Wayne. “It’s not just about ensuring a steady income, but also about harnessing the power of compound interest over a longer period. The best time to start a pension was years ago, but the second best time is now.”

Understanding pensions

A pension is essentially a long-term savings plan aimed at providing you with income during your retirement years. In Ireland, there are two main types of pensions:

• State Pension - The State Pension (Contributory) is a payment made by the Irish Government to those aged 66 or over who have made sufficient Pay Related Social Insurance (PRSI) contributions during their working life. The amount received depends on the person’s PRSI record.
• Private Pension - These are pension plans arranged by people individually or by their employers. Private pensions come in different forms, including Occupational Pensions (set up by employers), Personal Pensions, and PRSAs (Personal Retirement Savings Accounts).

The earlier you start contributing to your pension, the more time your money has to grow. Thanks to the power of compound interest, even small contributions made in your 20s or 30s can accumulate into a substantial retirement fund over time.

For example, if you have €1,000 and a pension policy that achieves a 5pc growth rate. In year one, you earn €50, giving you a fund value of €1,050. The next year, you earn interest on that €1,050, and so on.

Wayne adds, “Even a modest amount invested early can grow into a substantial sum by the time you retire.”

Pension planning is not just about securing an income; it’s about peace of mind and ensuring you can enjoy life post-retirement.

"It’s about having an alternative income stream to pay bills and enjoy life," says Wayne. “Additionally, pensions offer generous tax benefits and potential inheritance planning options, providing a safety net for your family.”

How to get started

With 20 years of industry experience and 14 years at Zurich, Wayne leads a team of financial planners and works directly with clients. His role involves aiding clients in all areas of financial planning, ensuring they find the best pension structure for their specific circumstances.

“The hardest part is making the decision to get started,” says Wayne, encouraging beginners to take that vital first step. “Pensions were perceived as complex in the past, but that’s not the case anymore. It’s important to seek advice and start as early as possible, even if it's with a small amount.”

Some tips on how you can get started with pension planning:

• Assess your situation - Understand your income, expenses, and debts to determine your contribution capabilities.
• Set clear goals - Define what you want your retirement lifestyle to be and calculate the necessary savings.
• Choose the right pension plan - Research and select a pension plan that suits your needs. Consult a financial advisor for personalised guidance.

There are various pension options available depending on your employment status. Wayne emphasises the importance of speaking to a financial planner to “ensure that you pick the best pension structure for your situation.”

Through individual discussions, risk assessments, and regular reviews, Wayne says financial advisors ensure that your pension is on track to meet your retirement goals.

“We provide online access to a client portal and have calculators available to help clients stay on track. Zurich Financial Planners will guide you through the process, explaining all elements of your pension without any jargon.”

The future of your pension

By breaking down the basics and taking a proactive approach, you can navigate the world of pensions. Your future self will thank you for investing in a pension today.

And with the global economy influencing pension funds, Wayne believes awareness around pensions will only grow in the future.

For example, there’s the implementation of auto-enrolment in late 2024. This means that all employees not already contributing to an existing employer pension scheme who are aged between 23 and 60 and earning €20,000 or more, will be required to automatically enrol in a pension**.

Wayne says changes in the pension landscape underscore the urgency for individual pension planning.

"There is more of an obligation on all of us to ensure we set aside funds for retirement.”

Wayne adds, "Zurich is here to help. We offer a variety of tools and resources to demystify the pension planning process and make it as straightforward as possible. Our team of financial planners are always on hand to provide expert advice tailored to your unique circumstances."

Taking a small action today and speaking to Zurich or a financial broker could have a great impact on your future. With a wide range of options, control and flexibility, you can choose a pension plan that’s right for you here.

If you’re wondering where to start, you can find a local financial advisor near you with the Zurich Advisor Finder here.

*Source: iReach pension survey, August 2023

**Source: https://www.gov.ie/en/campaigns/0ab04-automatic-enrolment-for-pensions-hub/, 12th September 2023.

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as of 1st November 2023 and may change in the future.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

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