Question of Finance: Should I up payments to my savings or pension?
Published 03/06/2010 | 05:00
Q: I am 45 years old and unmarried and have been part of my company pension scheme for 10 years now.
However, I am reassessing my financial situation and am becoming increasingly concerned that I may not be putting enough aside to provide me with a comfortable life in retirement.
I'm unsure as to whether I should add to my savings in the bank or increase my pension contributions, and if there is any limit on how much money I can pay into my pension fund?
A: I would advise you to speak to your pension-scheme adviser before making any decisions.
Also, if you log on to the Pensions Board website (http://www.pensionsboard.ie) the online pension calculator will give you a good idea of what you need to contribute now to provide for your retirement.
However, to address some of your queries, my advice would be that yes, given that few of us are contributing sufficiently to our pension, you should probably consider increasing your contribution if you can afford it.
Aside from good retirement planning a pension is one of the most tax-efficient forms of saving. If you choose to top up your contributions you would essentially be making what is termed an Additional Voluntary Contribution (AVC).
Because AVCs currently qualify for tax relief at the highest rate of tax, you can actually reduce your income tax payments now, while you avail of a good investment opportunity.
In addition, any investment returns recorded are also tax free. In summary, you pay less tax now, and enhance your financial security for your retirement. The maximum contribution that you can make that qualifies for personal tax relief in any tax year depends on your age.
Fionan O' Sullivan, director, IFG Corporate Pensions