Planning a pension for your retirement

galway daily business Planning a pension for your retirement

It’s never too early to start planning for your retirement if you plan on having the later years of your life be ones of comfort and exploration, and leave tight budgeting in the past.

Pension plans are essentially long term investment schemes, but it can be hard to choose which is the best for you.

Choosing a pension plan for you can be tricky for someone without much financial knowledge, as there can be a vast difference in the performance of different funds.

Up until 2015, most pension funds in Ireland were largely performing the same as one another, but in recent years they have begun to diverge wildly.

A review of the top performing pension funds carried out in 2021 found that between 2015 and 2020, the performance of different pension funds varied from returns of 21.7% (Merrion Investment Managers), to -3.1% (Setanta and New Ireland) by the end of five years.

There are many different options for a private pension, but one of the most important questions you have to ask yourself when setting up a pension plan is how much risk you are willing to accept.

That’s an important factor in determining whether you wish to invest your money in private stocks, government bonds, cash savings, or assets such as property.

Some, like property and stocks, may have the potential to deliver greater returns, but can also come with greater risks if they do not perform.

It’s important to ask and review what is in your pension fund, what are the best pension investment options, and to carry out periodic reviews of its performance.

Why have a private pension

Many people rely on the state pension to get by, possibly supplemented by savings or another small source of income.  

But putting too much emphasis on the state pension could be a risky move for people with many years ahead of them who are starting to save now.

The population in Ireland is trending older every year, which puts increasing strain on the government’s ability to fund large scale pension pots, as the ratio of working people to retired shifts.

While the government has put plans to raise the retirement to rest for now, deeming it politically toxic, it’s unlikely that this will continue to be the case in the years and decades ahead.

Starting a private pension now could be key to enjoying your retirement when you want to, rather than working as long as possible, and enjoying a far better quality of life when you do.

The full state contributory pension for a single person in Ireland is currently just over €13,000 at the age of retirement, which is not a lot to live on, and doesn’t go up any further until you hit 80 years old.

Tax-free gains

One significant factor in private pensions is the ability to draw down a lump sum of up to 25% of the pension’s total value, tax free, when you turn 50.

Cashing in your pension early like this, and getting that lump sum, can be very helpful in clearing any debts such as mortgages, freeing up earnings for continued saving, or to spend as you please.