Starting my own Pension - Employed

chops018

Hi all,

Just wondering if you could give me some pointers etc. on starting my own pension where I am employed but they do not offer a pension scheme.

Bit of background:

- 32
- Solicitor
- €55k per year

I had a pension in my job when I was 24/25 but I left to complete my Solicitor traineeship which was minimum wage for 2-3 years and no pension. Upon qualifying my firm didn't offer a pension. I planned to start my own but I moved to an in-house role which offered a great pension plan but I left to move back to private practise to work closer to home and again no pension plan offered.

From a very quick google I like the look of Zurich.

I see they offer a PRSA plan. I like this as you can increase or decrease contributions or stop paying temporarily if needed and bring it with you if you move jobs.

I would start out small - €80 a month.

I see from their online calculator if I paid €80 per month with a retirement age of 68 then it would give me €1,200 a month.

It also says that due to 40% tax relief that €80 a month would only really be €49 of my own money.

Does this look ok? I would obviously look to increase contributions after a while.

Also, to get the tax relief do I do it myself or can my employer do it directly?

Thanks in advance for any comments/tips!

The Mighty Quinn

chops018 wrote: »

I see from their online calculator if I paid €80 per month with a retirement age of 68 then it would give me €1,200 a month

Be wary of any guaranteed figures!

A quick compound interest calculation taking 960/yr as your contribution over 36 years until you retire, at an annual growth of 5% shows you'll have a pot of 96K on retirement, whereas if you got 6% you'd have a pot of 122K, etc etc.

chops018 wrote: »

It also says that due to 40% tax relief that €80 a month would only really be €49 of my own money

Yes, it's deducted from your gross before tax is applied, so it'll show as an €80 deduction, but in real terms 60% of that will be deducted from your take home pay.

chops018 wrote: »

Also, to get the tax relief do I do it myself or can my employer do it directly?

If you give payroll your PRSA details, they should be able to sort it out for you.

However if you want, you can use ROS myAccount and add pension yourself when you get your PRSA details from your provider, I think there's a certificate they give you which you'll need to upload.

I can't remember exactly but it's a straightforward process, I did it myself , that sorts your credits out that way too. In that case I was making a direct debit payment to the PRSA rather than it being deducted at source, so probably no need to go this route if you want to be deducted at source by your employer.

chops018

Ok, thanks for that info. Very helpful.

Yeah, I want to get started soon contributing.

I'll be wary of those calculators. Kinda knew they wouldn't be 100% but just wanted some sort of figures to see!

Jim2007

chops018 wrote: »

Ok, thanks for that info. Very helpful.

Yeah, I want to get started soon contributing.

I'll be wary of those calculators. Kinda knew they wouldn't be 100% but just wanted some sort of figures to see!

Pension planning at the best of times is difficult because there are so many variables in involved in projections, so some rules of thumb have grown up that work fairly well.

The first is to get some idea of how much you'll need in retirement, the general idea is about 65% - 70% of your current salary, so say 38k. Assuming you get a full state pension that comes in at about 12k and your private pension brings in another say 14.5k, for a total of 26.5k, so your about 30% short....

Now the idea would be that you would redo this calculation every few years and adjust your contribution to bring the expected pension into line. But there are a few problems - first the later you pay premiums the more expensive it is and it usually comes at a time when you can least afford it due to other commitments...

For this reason generally speaking it is better to front load and take advantage of the compounding factor... that is why most 2 pillar type pensions have young people paying in around 10% in the early years moving up to about 14% - 16% in the later years.

No matter how you stretch it, €80 is not going to get you the kind of retirement a professional person might want for themselves in retirement.

And that assumes you even want to work until you are perhaps 68.

wonski

The reality is that your 80 a month will only give you 300 euro a month upon retirement as the Zurich calculator takes into account state pension

I am now going to look into pension plan being 38 years old with similar salary of 50k a year, but luckily the employer is paying 3% into the pension fund of my choice. Zurich is on top of my list too now, but will look at others closely.

You just need to disregard state pension for those calculations as they make it look great but when you look at the numbers closer you realize how poor the return generally is.

Let's face it I personally only looked into it because I have just received a huge pay rise and all of it is at 40% tax. Wish I had looked at it earlier because smaller contributions made for years can make big difference.

I am personally planning to put at least 300-400 euro a month now (from gross salary)

80 a month is too low to even consider tbh, but it is your choice.

bobbyy gee

Commissions kill pensions

https://www.irishtimes.com/business/personal-finance/how-commission-payments-of-as-much-as-50-are-killing-your-pension-fund-1.2746296?mode=amp

Henry Ford III

bobbyy gee wrote: »

Commissions kill pensions

https://www.irishtimes.com/business/personal-finance/how-commission-payments-of-as-much-as-50-are-killing-your-pension-fund-1.2746296?mode=amp

How old is that article? 50% initial commission went out with the fog many years ago. 20% is as high as it goes now.

Any fees/charges/commissions are a cost. The question is are they justified and value for money? I calculate the time needed on any new case and input the charging structure accordingly. The hourly rate varies, but would compare favourably to other comparable professional services.

Anyone can go to a discount Broker and get a cheaper pension policy. The problem there is most people need help and advice on planning, life office selection, fund selection etc. So what use is a cheap pension if it's flawed from the outset? Ask a discount Broker for wider advice and the whole thing changes. I've done plenty of 0% commission stuff for various reasons which is actually better value than the discounters offer.

I'd liken the whole fee/commission thing to markup in any other business. Nothing wrong with markups - it's margin and it's what enables businesses generate profits. When it's taken as commission it becomes dark and dirty to some.

Consider a simple PPP - €5000 p.a. Factor in meetings, fact finding, research, reports, negotiation, and finally execution. Maximum commission might be 15 or 20%. If that takes 10 hours (it easily could if it's done correctly) that might give you €75 per hour before any costs. Get your BMW serviced at a main dealer and your mechanic (master technician) will cost you considerably more.
Fees might be the answer but charging one to an ordinary consumer goes against the grain and most won't go for it. Fees are potentially subject to VAT also, which is an extra cost for Joe Public.

Your pension is likely be your 2nd biggest financial asset in your lifetime. Is €75 per hour going to get you the level of advice and responsibility commensurate with that? Of course it isn't.

So once again proper advice is absolutely necessary for the vast majority. Of the remainder many will purchase cheaper pensions but they'll frequently be flawed in one way or another - might be structure, or product type, or an important technical consideration, or it might be some other important area of someone's financial makeup - life assurance, health insurance, income protection etc.

That article is so out of date and so horribly flawed technically it actually beggars belief - Imagine somebody saying "Markups increase prices!".

Jim2007

bobbyy gee wrote: »

Commissions kill pensions

The article you quoted is out of date and even back then, the very first sentence is misleading because it failed to acknowledge that retros paid in both countries were significantly higher to compensate the resellers for the lack of commission.

A lot of my professional career was spent working on projects in the area of performance attribution, in other words explaining why a portfolio performed the way it did. And that is why I’m concerned about a lot of the articles on personal finance that suggests you can be successful with a DIY approach to managing a pension, you can, but the result will almost certainly be less than it could have been.

First and foremost that biggest part of the return comes from the asset allocation not the fund selection. This is a complex area that articles either don’t address or just gloss over with some random rule of thumb rule.

The other great idea, not! Is that you just get the cheapest funds, that was not the intention - the idea was to use the cost of an index fund or composite to indicate what performance is worth paying extra for, not that you should never pay extra for good performance.

During the last recession my pension fund managers delivered an annualized return of 7.86%, was that worth paying extra for? Ah yes...