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Better late than never to top up old-age pension

Q I'm 48 and my income isn't that big at €24,000 a year. As the Irish State pension is higher than anywhere else in Europe, will it be enough to survive on when I retire at 68?

David, Crumlin, Dublin 12

A Our basic State Pension of about €12,000 a year is relatively generous compared with some other countries, at around 35 per cent of the average wage, which partly explains why Ireland has a relatively low pensioner poverty rate.

While the Government has indicated that it won't cut the State pension, it is increasing the age at which it starts to be paid. From this year, it is age 66 and from 2028, it will be 68. If the Government just continued to simply leave it at its current level, inflation would eat away at it. The value of pensions being paid out is also greater than the contributions being paid in, so it's pretty clear that you cannot rely on the old age pension. It is designed to keep you out of poverty, but that's about it.

How much you need in retirement will depend on certain factors – whether or not you'll own your own home at that point would be a primary consideration. When planning for retirement, most people plan to live off a reduced income, but as your income is already quite low, you may struggle to do this.

Obviously the earlier you begin saving the better – but it's definitely a case of better late than never when it comes to pensions. You also need to consider the amount you can afford to save. If you would like to fund a pension worth two-thirds of your current salary (including the State pension), you would need to set aside about €309 a month for a pension. You should still consider putting what you can afford aside – you can always increase contributions if your financial situation improves. If your employer has a pension scheme in place, you should join this as the employer will also be paying into your pension. The important thing is putting a pension structure in place.

Q We are newly married and are both contemplating joining our respective' pension schemes. We are currently both on similar incomes. However, I may take a few years out to have kids, so should we concentrate on my husband's pension?

Gemma, Athlone, Co Westmeath

A In theory, pensions are just savings pots so it shouldn't make any real difference. However, in reality, there are a few factors to consider which could end up making a big difference. You should consult an adviser who can assess the benefits of both pension arrangements and recommend the best option.

One consideration to take into account is how much your husband's and your employer are willing to contribute.

Whether or not they are befined benefit or defined contribution schemes will also impact your decision.

Your situation is not uncommon and invariably women often let their pension needs slide when they start a family because they may be out of the workforce for periods of time. It's very important from a family finance point of view that a career break is taken into account and that, where possible, provisions are put in place to balance the long-term implications. It's advisable to continue retirement funding even if one spouse stops working – you are planning for the retirement of two people not just one.

The earlier you make contributions to a pension plan the better as they have more time to grow.

Jerry Moriarty is CEO of the Irish Association of Pension Funds

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