State pension or private pension?
Contributing to a pension fund is important if you want to have a certain standard of living in retirement. Relying on the State pension might not be enough to sustain you well into your retirement and therefore it is highly likely you will have another pension arrangement in place to support you when you retire.
What are the main types of pension plans in Ireland
There are three types of pensions:
- Occupational pension schemes
- Personal pensions
- Public service pensions
Occupational pension schemes usually involve both employee and employer contributions. These schemes are mostly for private sector workers but include funded schemes set up by commercial entities too.
Personal pensions are individual savings contracts designed to provide retirement benefits, which include a Personal Retirement Savings Account (PRSA), an Annuity and Personal Retirement Bond.
Public service pensions are based on a pay-as-you-go model and these pensions are provided for civil and public servants.
Defined Contribution (DC) vs Defined Benefit (DB) pensions
Another important distinction is between Defined Contribution (DC) and Defined Benefit (DB) pension schemes.
For Defined Contribution (DC) pensions, the amounts available for benefits at retirement or leaving service depend on the value of the investment fund accumulated for the member, and there is no guarantee of any minimum benefit. Most funded occupational pension schemes and all personal pensions are defined contribution.
A Defined Benefit (DB) pension sets out the specific benefit that will be paid to a retiree. This calculation takes into account factors such as the number of years an employee has worked and their salary, which then dictates the set level of pension and/or lump sum that will be paid on retirement.
The main difference between a Defined Benefit (DB) pension scheme and a Defined Contribution (DC) pension scheme is that the former promises a specific income and the latter depends on factors such as the amount you pay into the pension and the fund's investment performance.
Deciding on the best pension for you is a big decision. Whether you're an employer or an employee, Zurich has many pension options for you to choose from. Find out about all the options open to you when choosing your pension plan.