Pension account that won't get raided

laradevire

Hi

I'm looking for recommendations on pension accounts. I'm 23, and looking to start investing, and I heard investing through a pension account is the most tax efficient way.

My dads boss has a pension, which was raided during the recession by the government. I'd be looking to avoid this if possible

Upforthematch

Not many options in Ireland anyway. Whatever you choose in terms of pension fund look at the annual management fee, that's where you'll be raided in realistic terms.

Squall Leonhart

Sorry to slightly sidetrack, but... Regarding government raiding pensions..

I have heard it said that what was taken by the government in vast majority of cases was considerably less than the money that was gained through tax relief on contributions to that pension.

But I don't know.. I find it hard to find clear information on it. From what I can gather it is something that is grossly exaggerated by those who seem to be against pensions (usually those who aren't paying into one and seem to want others not to either).

Can anybody offer an evidential insight rather than hearsay and bluster?

noel100

laradevire wrote:

I'm looking for recommendations on pension accounts. I'm 23, and looking to start investing, and I heard investing through a pension account is the most tax efficient way.

laradevire wrote:

My dads boss has a pension, which was raided during the recession by the government. I'd be looking to avoid this if possible

Set up a davyselect PRSA trading account.
Invest is Shares or crypto trackers.....

the_syco

laradevire wrote: »

looking to start investing, and I heard investing through a pension account is the most tax efficient way

Investments can still fail.I don't know why you think that if there was a sure fire way to stop losing money, that everyone wouldn't already be doning it?

L1011

Any pension receiving the hefty pension tax relief is open to the same levies as imposed.

You either give up the tax relief or seal it off - your choice. The pension levies didn't come within an asses roar of the tax relief last time.

Beasty

Investments certainly may go down as well as up. However over time they typically go up in value. For someone who is 23 they face 40+ years of saving. Over that time when investments do go down they become cheaper for any new investment. Investing regularly (say monthly) over 40 years means you will typically invest over a number of economic cycles. Sometimes at at the bottom of the market sometimes at the top. Those investing in 2006 may still be recovering their losses. Those investing in 2008 may well be sitting on substantial gains. Those investing throughout that period are probably still sitting on significant gains overall

This helps spread risk, as does investing in differing types of asset (ie not just stock markets/equities). Properly managed there are also tax advantages with relief on amounts invested (up to certain limits) and a potential tax free lump sum on retirement. You still pay income tax on the remaining pension but this may be at a lower rate or with proportionately higher tax credits/allowances.

However these are long term investments. They are not available to shelter you on a rainy day. In addition the tax rules in 40 years may be very different to now. Generally though the sooner you start the better pension you build up

FernandoTorres

There's a lot of misconception about pensions and plenty of stories from people talking about their pensions being "raided" without anything to back it up. The reality is that the Govt imposed a levy of 0.6% per year for four years on private pension funds.



It was a stupid decision and I in no way condone it but it has to be put in perspective of 41% tax relief if you're on the higher rate as well as the fact that a diversified index fund would be returning around 6% p.a over the long term.


Other situations where people may describe being raided is where they were in a defined benefit scheme that wound up in deficit. There was a general feeling that these pensions were "guaranteed" to be paid to people in retirement but in reality they were glorified Ponzi schemes. Again, it's a terrible situation and many people will feel aggrieved and spread their story saying that pensions are a terrible idea but if you're not in a DB scheme their story is not relevant to you.

Squall Leonhart

Thanks for clearing that up. 0.6%, while aggravating, and shouldn't have been done to begin with, isn't anything major.

Klonker

Most of the value people lost in their pensions was because during the recession the share price in a lot of companies decreased, look at our banks as an example.

People like to blame it on the government raiding their pensions (though I disagree with this), in reality the drop in share price was a way way larger contributor.

Just easier and a better soundbite to blame the government while down the pub.

Nermal

Squall Leonhart wrote: »

Thanks for clearing that up. 0.6%, while aggravating, and shouldn't have been done to begin with, isn't anything major.

No, but it established a principle: your fund is not really yours, it's a piggy-bank for the State.

.......

Squall Leonhart wrote: »

Thanks for clearing that up. 0.6%, while aggravating, and shouldn't have been done to begin with, isn't anything major.

The issue here isnt the amount the government took, its the precedent set that its not actually your pension fund, and if the government decide they want some of it, or more of it, or all of it - they can just go ahead and take it.

cnocbui

Best option - Emigrate.

Second best option, move overseas long enough to rent, get utilities in your name at the rental address and open local bank accounts and other financial services like online share trading. Move back and send your money to your overseas account and use that to fund the share trading account to regularly purchase listed ETFs (exchange traded funds).

Geuze

Squall Leonhart wrote: »

Sorry to slightly sidetrack, but... Regarding government raiding pensions..

I have heard it said that what was taken by the government in vast majority of cases was considerably less than the money that was gained through tax relief on contributions to that pension.

But I don't know.. I find it hard to find clear information on it. From what I can gather it is something that is grossly exaggerated by those who seem to be against pensions (usually those who aren't paying into one and seem to want others not to either).

https://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_on_pension_assets/

However, the Minister for Finance introduced a temporary Pension Levy of 0.6% of pension fund assets, payable for each of the 4 years 2011 - 2014 and an additional levy of 0.15% for 2014 and 2015. Therefore, in 2014 the levy increased to 0.75% and in 2015, the levy was 0.15%. The levy was based on the market value of the pension fund on 30 June each year.

The levy has been discontinued from 2016.

Nermal

Nermal wrote: »

No, but it established a principle: your fund is not really yours, it's a piggy-bank for the State.

Indeed they took a few quid last time and there was little political blowback for it. Next time there is a big problem they will take a little more.

Klonker

Klonker wrote: »

Most of the value people lost in their pensions was because during the recession the share price in a lot of companies decreased, look at our banks as an example.

People like to blame it on the government raiding their pensions (though I disagree with this), in reality the drop in share price was a way way larger contributor.

Just easier and a better soundbite to blame the government while down the pub.

I put money into my pension fund knowing fully that there are going to be ups and downs in share prices.

I did not know that the government can help itself to it whenever it decides.

Henry Ford III

noel100 wrote: »

Set up a davyselect PRSA trading account.
Invest is Shares or crypto trackers.....

Legendary fact finding and product/fund selection skills

begsbyOnaTrain

cnocbui wrote: »

Best option - Emigrate.

Second best option, move overseas long enough to rent, get utilities in your name at the rental address and open local bank accounts and other financial services like online share trading. Move back and send your money to your overseas account and use that to fund the share trading account to regularly purchase listed ETFs (exchange traded funds).

It really is scandalous when you compare some of the offerings abroad to what's available in Ireland. I can dump £20k into my Stocks&Shares ISA per year, tax free forever. Capital Gains Tax in Ireland is a joke.

cnocbui

begsbyOnaTrain wrote: »

It really is scandalous when you compare some of the offerings abroad to what's available in Ireland. I can dump £20k into my Stocks&Shares ISA per year, tax free forever. Capital Gains Tax in Ireland is a joke.

This country is a taxation hell-hole, I'm getting out.

antix80

God knows what's going to happen in the next 45 years (your state retirement age in Ireland, op). The world will be a very different place.
Some backward countries nationalised private pension funds during economic turmoil. The logic being, sign your private pension over to us - we'll administer it, "invest" in the economy through roads and green energy, and if you don't you won't receive a state pension.

The 0.75% Irish government levy on private pension funds was disgraceful and to me, it's the shape of things to come at the first sign of trouble. Sure, invest in a pension (as you said, it's tax efficient and if you're an employee your employer may make a matched contribution) but don't put all your eggs in one basket as you're completely at the mercy of the Irish government and Irish tax authorities. Your pension funds will be taxed and inaccessible until retirement, and upon retirement you'll still be at the mercy regarding how much you can withdraw.

jimmy456

antix80 wrote: »

The 0.75% Irish government levy on private pension funds was disgraceful and to me, it's the shape of things to come at the first sign of trouble. Sure, invest in a pension (as you said, it's tax efficient and if you're an employee your employer may make a matched contribution) but don't put all your eggs in one basket as you're completely at the mercy of the Irish government and Irish tax authorities. Your pension funds will be taxed and inaccessible until retirement, and upon retirement you'll still be at the mercy regarding how much you can withdraw.

It was a test for future wealth taxes that is for sure

Jim2007

antix80 wrote: »

The 0.75% Irish government levy on private pension funds was disgraceful and to me, it's the shape of things to come at the first sign of trouble. Sure, invest in a pension (as you said, it's tax efficient and if you're an employee your employer may make a matched contribution) but don't put all your eggs in one basket as you're completely at the mercy of the Irish government and Irish tax authorities. Your pension funds will be taxed and inaccessible until retirement, and upon retirement you'll still be at the mercy regarding how much you can withdraw.

Total BS. Even with levies etc.. it still represents the best option and is the same as in most other countries.... just the usually whining from the clueless.

antix80

Jim2007 wrote: »

Total BS. Even with levies etc.. it still represents the best option and is the same as in most other countries.... just the usually whining from the clueless.

Yes, Jim. Usually whining from the clueless. :rolleyes:

Great advice for a 23 year old, 40+ years from retirement, who's asking about investing, knows pensions are tax efficient, but is concerned about the pension fund being raided. Your advice "it still represents the best option." Bravo.

Op, there are limits as to the percentage of your income you can invest in a pension and claim tax relief on in any year (15% of earnings for <30 year olds, that's your and your employer contribution). And if you're not paying the high rate of tax, how do you know you won't be paying a higher rate of tax upon retirement?
The money will be locked away til retirement, and upon retirement there are limits on how much you can withdraw. I don't mean to scaremonger - gains on your investment will be tax free, and as whiny Jim already pointed out, the pension regime has been favourable to investors and retirees to date. But what the government did raiding private pension funds (regardless of a person's income in the particular year), is banana republic stuff.

Have a read of this if you think you can completely trust the government with your pension:
https://emerging-europe.com/news/romanias-private-pension-pot-faces-threat-of-nationalisation/
https://www.iol.co.za/news/politics/da-to-fight-ancs-attempt-to-nationalise-private-pensions-19224010
https://www.telegraph.co.uk/finance/financialcrisis/3237534/Argenitina-moves-to-nationalise-private-pensions.html

I'm not saying don't start a pension. I'm just saying, it's a long time to lock away your money and carries some unique risks that might not exist in other types of investment.

Nermal

Jim2007 wrote: »

Total BS. Even with levies etc.. it still represents the best option and is the same as in most other countries.... just the usually whining from the clueless.

Why the hyperbole? It can be the best option while not necessarily being a good one.

Henry Ford III

Fundamentally we have an ageing population and that and increased longevity means more and more people will be drawing the state OAP for longer. That places a huge strain on the future finances of the country.

Making pensions (where people essentially pay for their retirement benefits themselves) any less attractive would be a horrendously bad move, and I simply can't see it happening.

Infact the looming pension auto enrollment (mandatory pensions for all those employed)
will significantly increase pensions coverage overall.

Micky Noonan doing a small raid on private pensions was a bit of short term pain, but overall the tax treatment of pensions - marginal rate relief, gross roll up, and tax free lump sums at retirement, plus some clever planning opportunities - make them an enormously attractive long term investment.

Heres Johnny

Well guys I'm late 30s now paying into my own private pension since a young age and now into an occupational pension with my current employer.
My fund is now approaching 100k and I've calculated that after tax relief and employer contributions etc the amount that came out of my back pocket is less than half that. There's been 4 years in the 18 I've been paying in that there was a negative return.
2001,2002,2008 and 2009.
Im going to substantially increase my contributions now and my plan is to have 800k in it when I finish. 800k to get the max 200k tax free lump sum on retirement. Then 30k or so a year for 20 years on top of state pension.
Anyone that doesn't take advantage of what's on offer is missing out. At least go talk to an advisor, fee based if you're afraid the advisor is only looking for commissions.
Heading into my 60s and being told I have to live on 33% of average industrial wage scares the be jaysus out of me.