Sunday 4 December 2016

The Dos and Don'ts when it comes to planning your pension

Published 25/10/2015 | 02:30

'Don't put all your eggs into the one basket. Pouring all your pension money into one type of investment makes you very vulnerable'
'Don't put all your eggs into the one basket. Pouring all your pension money into one type of investment makes you very vulnerable'

The Dos: One: Keep up your PRSI record as much as you can, so that you get the full State pension.

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One: Keep up your PRSI record as much as you can, so that you get the full State pension.

To qualify for the full State pension, you must have paid a certain amount of social insurance - or PRSI - contributions. You typically build up these contributions while working. However, if there are times when you're not working, you may be able to get PRSI credits or pay voluntary PRSI contributions to keep your social insurance record going.

Two: Start saving into your pension as early as you can. The sooner you start, the more you'll have at retirement.

Three: Save as much as you can afford into your pension, particularly where your employer matches the contribution you're paying.

Four: Understand where your pension money is invested - and the risks that come with that.

Five: Understand what charges you're paying - and how exactly they could eat into the value of your pension. You could lose as much as €120,000 of a €400,000 pension pot to charges.

The Don'ts

One: Don't rely on the State pension - or your partner's private pension. You'll most likely struggle to get by in retirement if you do.

Two: Don't invest in geared pension funds (also known as leveraged funds) - where a large chunk of the money in the fund is borrowed, advised Vincent Digby, founder of Impartial. "Absolute no-nos for pensions are geared funds, which thankfully are much rarer today - even though leveraged property plays of various types are starting to surface again," said Mr Digby.

Three: Don't invest in capital-guaranteed products, which guarantee to repay most - if not all - of your original investment, according to Mr Digby. "Capital-protected products are another no-no because the costs involved in providing the guarantee means that you are limiting your upside as well," said Mr Digby. "In effect you are over-paying for the guarantee and either way, most capital-protected products have you exposed to a 10pc loss anyway - so you are probably better off taking the investment risk of another product. In addition, most - if not all - of your money is at risk if the credit guarantee provider goes belly up - and you should never take that risk with your precious pension."

Four: Avoid bonds funds. Many of those with private pensions, in particular defined benefit schemes, have a lot of money invested in bonds. However, bond funds (also known as fixed income funds) should be avoided for the moment, advised Mr Digby. "Bond funds have done poorly year over the last year," said Mr Digby. "We think we are in for a protracted period where bonds returns are poor - so avoid these funds for at least a couple of years until interest rates have normalised."

Five: Don't put all your eggs into the one basket. Pouring all your pension money into one type of investment makes you very vulnerable. Make sure the money in your pension fund is invested in various types of investments.

Sunday Indo Business

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