Tuesday 25 October 2016

Why is my pension fund not worth more than what my boss and I have saved into it so far?

Your Questions

Jerry Moriarty

Published 24/01/2016 | 02:30

'A pension fund is an important financial resource and actively engaging with your financial advisers or pension trustees will stand to you in the future' Photo:Depositphotos
'A pension fund is an important financial resource and actively engaging with your financial advisers or pension trustees will stand to you in the future' Photo:Depositphotos

I started a pension in 2008 but I recently noticed that, between my employer and my own contributions, the fund is only worth the same amount as the total contributions to date. I was surprised by this as pensions are supposed to have had a few good years - though some of my colleagues suggested that my choice of cash and bonds could be the issue. At 32, I've a good few years left. Should I switch to shares or other investments - or is that too risky? John, Glasnevin, Dublin 9

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This is a common enough issue, particularly for those who started a pension during the recession when there was a tendency to select the most conservative investment options.

Taking this strategy, you were most likely to avoid the drops in the market when your fund would have fallen, but you also avoided the rises in the stock markets. Taking a very conservative position is generally fine if you are relatively close to retirement, particularly where you've amassed a considerable size fund and will need to call on it on the next few years. In your case, you have a relatively small amount in your fund as you have only been saving for between seven and eight years and you have decades left before you are likely to retire. Therefore, you should re-examine your investment options at this stage.

While opting for the most conservative investment choice may appear to be the safe option, it could prove to be the riskiest one in the long-term if you don't generate enough growth. Attitude to risk is very personal, as will be your needs in retirement, and you should get specialist investment advice when reviewing your investment options. Talk to your employer and the scheme trustees about the options available.

A pension fund is an important financial resource and actively engaging with your financial advisers or pension trustees will stand to you in the future.

I am a 31-year-old salesman working in Dublin and I'm trying to save for my first house. However, I'm conscious that I have neglected to set up any form of pension over the course of my working life. (My employer does not provide one.)

I've heard that I should be saving about 8pc to 10pc of my salary into a pension - but there's no way I can afford that.

What's the least I can save that would still make it worthwhile opening a pension?

Fiachra, Clontarf, Dublin 3

Saving for retirement does require a long-term commitment and there are significant benefits to starting as early as possible. In short - something is better than nothing.

Generally, it is recommended that people put aside approximately 10pc to 15pc of their salary for their pension. However, this depends very much on your personal circumstances and your income needs in retirement. But for someone in your position, even if you can't meet the 'recommended' contribution rate, it is still very much worth your while putting in what you can for now.

There is a calculator on the Pensions Authority's website (www.pensionsauthority.ie) that will help you to figure out how much you should be saving, based on how much you think you will need in retirement, your age and current salary.

It's believed that the first step of setting up the pension if often the biggest hurdle - once you have done this, you are more likely to continue a savings habit for the rest of your career and give yourself a better chance of having a substantial pension pot for your later years.

You should talk to an independent financial adviser and set up the pension, put in what you can for the moment, and review your contribution rate on a yearly basis. A good time for this review is when you receive your annual statement. If you can grow your contribution level incrementally, particularly when you get pay rises, you will be on the right track for retirement.

I have been saving into a pension for about eight years. I never take any notice of the yearly updates that come from my pension provider. I'm only 39 so I have a long way to go before I can really see how much the pension is going to provide me in retirement.

But I'm wondering now should I be taking more notice - or action? What should I do to improve my pension performance? How would I even know if it's doing relatively badly in comparison with other pensions?

Elaine, Trim, Co Meath

At your age, it's unlikely that you are going to make any big changes to the way your pension is managed or the investment decisions taken by your pension managers.

However, it's still always important to keep an eye on your pension performance. You should have an idea of how much you are likely to need in retirement to have the lifestyle you want - and whether you are currently on track to achieve that. The important things to bear in mind when it comes to your pension are whether you are saving enough, whether the charges and fees are reasonable, and whether or not you are investing in the right funds. You need to ensure that you are investing in the right type of fund - taking into account your attitude to risk and the time you have left to retirement. An independent financial adviser would be able to help you with those questions and compare performance.

While you're not going to be changing your investment choices on a regular basis with so long to go to retirement, it always pays to keep an eye on what is essentially a savings fund - but one that will play a very important role in your life in later years.

I set up my own business 18 months ago - and until six months ago, it was just me. However, business has been good and I've taken on two employees over the course of the last six months.

We're a small operation at the moment - so pension payments are not part of their package. However, one staff member has just come to me asking if I can provide her access to a pension fund so that she can pay in herself. What are my obligations as an employer in this regard?

Linda, Naas, Co Kildare

In short, while you are not required to pay into a pension for employees - you are obligated to allow your employees access to one. If you do not have a dedicated company pension scheme, you are obliged by law to provide access to at least one standard Personal Retirement Savings Account (PRSA).

This is pretty straightforward and just involves nominating a provider and allowing employees to pay by payroll deduction. Legislation also provides that an employer must allow reasonable paid leave of absence, subject to work requirements, so that excluded employees can set up a standard PRSA and make deductions from payroll if required.

It is certainly worthwhile to be aware of your obligations and to be compliant - you could be subject to an on-the-spot fine if you are found not to be. You will find details of all your legal obligations on the Pensions Authority's website. As the economy improves and employment increases, the availability of a pension scheme may make your business more attractive to work in or stay in for existing employees


Email your questions to lmcbride@independent.ie or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

CEO of the Irish Association of Pension Funds

Sunday Indo Business

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