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“I’ve heard pension fees and charges erode the value. Should I bother?”

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Your pension is the best vehicle for building wealth. Stock image

Your pension is the best vehicle for building wealth. Stock image

Your pension is the best vehicle for building wealth. Stock image

Q I’m 31, just got married and I have started thinking about whether my wife and I will have enough income on which to live comfortably during our retirement. I’m a PAYE worker but my employer doesn’t offer an occupational pension scheme, so I’m considering investing in one myself. However, I read a report last year that found that as much as €6 in every €10 in pension funds are being swallowed up by fees and charges. and I’m worried that the value of any pension I invest in over the next 35 years or so will be eroded by fees. Is it still worth me going ahead? Jeff, Co Galway

A A pension is the best show in town for anyone in Ireland trying to build up their long-term wealth. There are three reasons why no other approach can match a pension when it comes to providing an income for when you’ve retired. Firstly, tax relief at your top rate of income tax means that you can land €125 in your pension for every €100 of net pay you put in (or €167 if you pay the top rate tax). Secondly, you’ll receive tax-free investment growth because your money is put to work over many years. Thirdly, when you retire, you can take a tax-free lump sum at retirement -- typically 25pc of the value of your funds.

As you say, however, charges can make serious inroads into the value of your pension. There is money to be won and lost by setting it up right, so use a provider that offers transparency on charges and good value in return for their work. Be especially wary of any charges that mean that less than 100pc of the money you pay in will be invested in your pension account.

At the same time, don’t make fees an excuse for taking no action at all. The hardest part of sorting out your pension is making a start on it. And if your employer doesn’t offer a company pension, it’s down to you to take charge. Once you do, you’ll begin to see your money build up, you’ll enjoy compound investment growth over time, and your pension fund can become a source of peace of mind and financial security.

No one solves their retirement plan overnight. But starting sooner makes things a lot easier, because investment growth does more of the work for you.

My retired father has a generous public service pension and I don’t have any. Can I inherit his?

Q I’m a 49-year-old sole trader and I’ve never had a pension plan because money has always been tight. My 79-year-old father used to be a public servant and he seems to have a healthy pension. He’s already told me that I will inherit his estate (my mother died two years ago and I have no siblings). Can I inherit his pension or should I start my own? Maurice, Co Dublin

A You would be well advised to build up your own pension, for several reasons.

To begin with, you are leaving a substantial tax-saving and wealth-building opportunity on the table if you don’t start a pension. You’re also placing a big bet on an inheritance that you ultimately can’t control.

Your father’s public service pension will almost certainly cease to be paid upon his death and will not be capable of being inherited.

And while it seems probable you will inherit his estate, its value is uncertain.

For example, he may need to use his assets for his own care in later life. And he would be within his rights to leave some or all of it to other beneficiaries.

What’s more, the timing of any inheritance is highly uncertain. So it’s risky to make plans based on an expected inheritance.

Focus instead on what you can control. It’s never too late to start a pension.

Our 40s and 50s are when most of us really build up our pension wealth because our earnings increase and mortgages and other commitments become more manageable.

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Depending on your financial position, you could pay into this pension for more than two decades.

So there is plenty of time to build up a meaningful retirement fund. You could also consider giving your pension a kick start by adding a lump sum to be set against your 2021 tax bill.

Lastly, you have another major asset in the form of your business. Look into how you can achieve value for this in due course, such as by availing of retirement relief, with much of the gains protected from tax if you sell your business.


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