New pension question with Bank of Ireland

Outkast_IRE

Ok basically the girlfriends comapany had a visit from BOI pension manager.
Trying to convince them to start one.

The story is , if she contributes 3% of her wage, the company will top it up with 3% . That part is fine . The company contribute a max of 3% you can up your own percentage but the company will always be 3%.

When you start the pension then you can pick which fund it goes into and it gives the associate risk low,medium, high etc.

What are peoples opinions on Bank of Ireland for such pensions ?
What risk would it be fair to take at the start while the amounts are low ? I was thinking a high risk strategy early for a few years and see how it works out and then move it to a lower risk fund ?

Any help appreciated.

roro2

The general consensus would be to choose high or medium-high risk funds for people with a long time until retirement. These funds would be predominantly invested in equities which, in theory, should generate returns on average that beat inflation. Low risk funds are likely to be invested in cash (deposits) or government bonds and cash, which should be less volatile but could well produce returns that don't keep pace with inflation - and so the fund effectively loses purchasing power.

Presuming a long-time til retirement (?), higher risk funds would be the way to go.

Outkast_IRE

roro2 wrote: »

The general consensus would be to choose high or medium-high risk funds for people with a long time until retirement. These funds would be predominantly invested in equities which, in theory, should generate returns on average that beat inflation. Low risk funds are likely to be invested in cash (deposits) or government bonds and cash, which should be less volatile but could well produce returns that don't keep pace with inflation - and so the fund effectively loses purchasing power.

Presuming a long-time til retirement (?), higher risk funds would be the way to go.

yes long term aged 28 until retirement so believe the high risk would be the option for the moment

coylemj

Outkast_IRE wrote: »

yes long term aged 28 until retirement so believe the high risk would be the option for the moment

Correct but be prepared for some volatility and do not panic and move all the money into low-risk if/when there's a market crash along the way. I know some people who did this after the Lehman's crash so they have now missed out on the bounceback and are showing very poor returns on their money.

However you don't want to risk that there's a crash the month before you retire so it's a good idea to gradually move the money from managed (mainly equity) funds to more 'boring' funds in the ten years or so before you intend retiring.

Outkast_IRE

coylemj wrote: »

Correct but be prepared for some volatility and do not panic and move all the money into low-risk if/when there's a market crash along the way. I know some people who did this after the Lehman's crash so they have now missed out on the bounceback and are showing very poor returns on their money.

However you don't want to risk that there's a crash the month before you retire so it's a good idea to gradually move the money from managed (mainly equity) funds to more 'boring' funds in the ten years or so before you intend retiring.

Thats what i was thinking leave it in high risk for maybe first 10 years then to a moderate risk for the next 10 years then low risk in the decade coming to retirement age.

Browney7

coylemj wrote: »

Outkast_IRE wrote: »

yes long term aged 28 until retirement so believe the high risk would be the option for the moment

Correct but be prepared for some volatility and do not panic and move all the money into low-risk if/when there's a market crash along the way. I know some people who did this after the Lehman's crash so they have now missed out on the bounceback and are showing very poor returns on their money.

However you don't want to risk that there's a crash the month before you retire so it's a good idea to gradually move the money from managed (mainly equity) funds to more 'boring' funds in the ten years or so before you intend retiring.

There are funds that do this automatically. They have shares and property at the start and with approx 5/10 years to retirement it starts to derisk and buy long bonds and cash until there is approx 25% cash and 75% bonds. When you retire you get the 25% as a tfls and 75% goes to the annuity

Outkast_IRE

Ok now to answer the other question , what are peoples general opinions on such pensions.

Good idea or start a longterm savings scheme yourself ?

As i said in this pension you contribute at least 3 % of your wage, the employer will contribute 3% . You can up the % you contribute but the employers wont change from 3% of your wage.
Seems like the 3% from the employer makes this worth while??

Liam D Ferguson

The employer contribution makes the pension a very attractive proposition. Let's say your girlfriend is on €40,000 salary so 3% is €100 per month. If she's on the low rate of tax, her €100 costs her €80 after tax relief. There's €200 per month going into the pension and it's costing her €80. If she's on the high rate of tax, the €200 per month will cost her €59.

Mind you, some of her pension may be taxable when she retires, although some of it will be tax-free.

Ask the Bank of Ireland person to detail (in writing)what the charges are and make sure that they're explained in English as distinct from jargon. Find out what the charges are on each contribution she makes and also what the annual charges on the fund are. Charges can have a big impact on a fund over a long period of time and if Bank of Ireland aren't offering a competitive deal (and her company aren't tied to them) they should shop around as it's a very competitive market out there.

In the interests of full disclosure, I'm a Financial Broker, but I've tried to stick to hard facts rather than just my opinion.

Outkast_IRE

Liam D Ferguson wrote: »

The employer contribution makes the pension a very attractive proposition. Let's say your girlfriend is on €40,000 salary so 3% is €100 per month. If she's on the low rate of tax, her €100 costs her €80 after tax relief. There's €200 per month going into the pension and it's costing her €80. If she's on the high rate of tax, the €200 per month will cost her €59.

Mind you, some of her pension may be taxable when she retires, although some of it will be tax-free.

Ask the Bank of Ireland person to detail (in writing)what the charges are and make sure that they're explained in English as distinct from jargon. Find out what the charges are on each contribution she makes and also what the annual charges on the fund are. Charges can have a big impact on a fund over a long period of time and if Bank of Ireland aren't offering a competitive deal (and her company aren't tied to them) they should shop around as it's a very competitive market out there.

In the interests of full disclosure, I'm a Financial Broker, but I've tried to stick to hard facts rather than just my opinion.

Company is tied to BOI , the 3% employer contribution is tied to you joining a BOI scheme the company is organising everything with one of their pension managers who has come to talk to people individually about starting a pension, there is a load of literature he has given her i will have a look to see any mention of the charges, if i cant make it out i will get her to ask.

Thanks for the advice. She would be currently on the low tax rate , but in the next few years would be moving to the higher rate.