N

ow, you might be thinking, I simply cannot

aford to contribute to a pension theres no
spare cash in the budget. Times are tough,
theres no question about that. However, your
retirement only gets closer the more you delay
starting a pension, and this afects the amount of money
waiting for you when that time comes.
So, do you really think you cant aford it? Lets consider a
fewthings ... Taking the example of a female, aged 28, earning
35,000 a year, paying 5%of her salary (146 per month) into
a pension. Tis would initially cost her 116.80 per month
when taking account of the tax relief she will receive on the
contributions. Assuming premiums are indexing annually
and her pension fund produces a return of 6% per annum,
she could reasonably expect this to build up a fund of around
336,662 by her retirement age of 68. Its important to note
that this fund of 336,662 will actually cost her 105,322
(taking into account total contributions and tax relief). Froma
fund of 336,662, she could reasonably expect this to provide
her with a pension income of around 1191.61 per month.
Remember, there are still generous tax reliefs available when
it comes to pensions, based on the marginal rate of tax you pay.
If you are a 41% income tax payer, each 100 you pay into
your pension will only cost you 59. If you are a 20% income
tax payer, each 100 you pay into your pension will cost you
80 when you take into account tax relief. Also, your money
will grow tax-free, unlike with a savings or deposit account.
Te value of getting started early at a smaller amount, rather
than starting later and trying to play catch-up by paying in
a bigger amount, is huge. For example, a female, age 28, 40
years to retirement, paying in 146 per month can expect to
build up a fund of 336,662; whereas a female, age 48, 20
years to retirement, paying in 292 per month can expect to
build up a fund of 146,317.
So even though the person playing catch-up with half
the amount of time to save for her retirement doubled her
contributions to try to make up for this, she still had less than
half the fundat retirement versus the personwhostartedearlier
with smaller amounts. Tis is because of compounding,
which is basically earning interest on top of interest, or
in this case, growth on top of growth. Einstein discovered
compounding and apparently described it as the greatest
mathematical discovery of all time. Its certainly relevant
when it comes to saving for retirement, and highlights the
benefts of starting early, even if its only with a small amount.
With a pension, its about getting started, and getting into
the habit of saving regularly. You can always increase and
decrease your contributions over time depending on your life
stages (having kids, paying a mortgage, saving for education).
A
nimportant fact toremember is that the badtimes
can also be good for your pension. Yes, it pays to
safeguard any fund that you have built up, but in
times of turbulence you should, more than ever,
continue to make contributions, as this is where
you will see your most substantial growth come from. Tis is
also why its advisable to pay in regular monthly contributions,
rather than a large contribution once a year, as you are more
likely to beneft from the price fuctuations. On the subject
of 2008 and the large losses sufered by many, at this stage
most losses are recouped and peoples funds have recovered
back to pre-crash levels. Te important thing to remember
is that a pension is a long-term investment and short-term
fuctuations are to be expected. You should ensure that you
are only investing in funds that suit your own appetite for risk.
Some people are very cautious, some like to take a higher risk;
this is where a good pension advisor will be able to help steer
you in the right direction.
So, now that you know what it costs to live three decades
into the future, are you thinking about that pension yet? If so,
talk to a retirement planning advisor, who can advise and help
you understand where your money goes, what its invested
in, and most importantly, help you feel more engaged and
enthusiastic about your retirement planning.
@JoanneTSmith
1
Even if a company only
employs one member of staf,
they still have certain pension
obligations to their employees.
At a minimum, employers must
provide employees with access
to a pension. This can be done
by putting in place a company
pension scheme, or facilitating
access to a standard PRSA
(personal retirement savings
account).
2
If there is no company
pension scheme, you
would need to speak to
your employer about a PRSA.
The employer doesnt have to
contribute to the scheme for
you, but they do have certain
obligations, including appointing
at least one standard PRSA
provider; notifying employees
that they have a right to
contribute to a PRSA; allowing
the PRSA provider or pension
advisor reasonable access to
employees at the place of work;
allowing reasonable paid leave
for employees to set up a PRSA;
making deductions from payroll
when instructed by the employee
and remitting them to the PRSA
provider; and advising employees
in writing (normally on their
payslip) at least once a month of
their total contribution, including
employers contribution, if any.
3
PRSAs are particularly
good because they are
very fexible, for example,
if you move to a diferent job or
become self-employed, you could
move the pension with you and
keep contributing through your
new employers payroll or directly
from your bank account. Also an
employer can add contributions
into your PRSA if they wish.
The amounts are fexible too,
so if you wanted to increase or
decrease your contributions or
pay in an extra lump sum, you
can do this.
4
Standard PRSAs have
strict rules on charges and
minimum contributions set
out by the Pensions Authority and
the Revenue also, meaning that
contributions can start as low as
25 per month, so they really are
accessible and afordable to all.
Te Dt ais
146
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