What is a reasonable pension pot?

TheBully

I started my pension late, not very late but later than I would have liked! For this reason, last year I started doin AVC's.
I'm 34, and I worry about my future. I'm currently putting 6% of my salary into my pot along with an additional 6% in AVC's, my employer puts in an additional 9%.
I currently have €48000 in the pot, with a forecasted 500k at retirement.

I know I will have more than others at retirement but I am pushing myself with the AVCs.
My question is, is this a decent enough pot, is it the average pot?
I'd like to max out my AVC contributions but I'm not financially able at the minute! What kind of pension pot have u guys?

Jim_Hodge

There's a table here

https://www.joslinrhodes.co.uk/retirement-planning/can-i-retire-at-55/

Or here
https://www.unbiased.co.uk/news/financial-adviser/retire-at-55

and others are available.

mloc123

I think a lot depends on what your current salary is, how much you spend each month etc...

You need to look at how much you need to live each month now, and deduct mortgage etc.. assuming it will be cleared before you retire.

General rule of thumb... Pay as much as you can (within the tax free band) each year.

Canyon86

I started later than I would have liked also
I'm 31 and I ve been paying into a prsa since December
Has 3,000 in it so far

I intent to max out my Avcs each year all going well that is, whilst also getting my mortgage and emergency fund increased too,

TheBully

mloc123 wrote: »

I think a lot depends on what your current salary is, how much you spend each month etc...

You need to look at how much you need to live each month now, and deduct mortgage etc.. assuming it will be cleared before you retire.

General rule of thumb... Pay as much as you can (within the tax free band) each year.

Thanks, my salary isn't major, 45k or so, but this will rise up to 50k within the next 5 years.

Can I just ask, the tax free band doesn't include my employers contributions I take it, only my own?

TheBully

Canyon86 wrote: »

I started later than I would have liked also
I'm 31 and I ve been paying into a prsa since December
Has 3,000 in it so far

I intent to max out my Avcs each year all going well that is, whilst also getting my mortgage and emergency fund increased too,

Never too late, good work!
We just had our second baby last week so I'm hoping to put both childrens allowances in on top of the mortgage every month! The emergency fund isn't going great at the moment though, that's the next thing to work on

The Mighty Quinn

TheBully wrote: »

Never too late, good work!
We just had our second baby last week so I'm hoping to put both childrens allowances in on top of the mortgage every month! The emergency fund isn't going great at the moment though, that's the next thing to work on

This sounds like you could be me...
I'm 35, second baby arrived in May. Started pension at 30. Had no employer contributions until I was 33.

I've about 37K in pension, and virtually no emergency fund. Fool move perhaps. My flawed reasoning is a pension can still work for me if I stop or reduce payments in to it. If I can get it up to 50K I'll turn to developing funds elsewhere, at current rate it'll be 14 months or so away. I'll then reduce my % a little and divert money to an emergency fund.

I overpay mortgage by 130 a month, but that's for me to feel good rather than financially prudent.

Every thing I'm reading suggests I'll need a pot of 500K+ which is really difficult to obtain, for me anyway. Never say never, but I highly doubt I'll manage that.

I'd love a thread where people who have actually retired tell us what their pot was on retirement and how they're managing, but nobody is likely to volunteer that information truthfully.

All going well mortgage will be cleared before then, children will be about 30. I'm wondering how much you reallllly need if not living a flash lifestyle, but I suspect even things like health insurance etc will gobble up chunks of it.

TheBully

The Mighty Quinn wrote: »

This sounds like you could be me...
I'm 35, second baby arrived in May. Started pension at 30. Had no employer contributions until I was 33.

I've about 37K in pension, and virtually no emergency fund. Fool move perhaps. My flawed reasoning is a pension can still work for me if I stop or reduce payments in to it. If I can get it up to 50K I'll turn to developing funds elsewhere, at current rate it'll be 14 months or so away. I'll then reduce my % a little and divert money to an emergency fund.

I overpay mortgage by 130 a month, but that's for me to feel good rather than financially prudent.

Every thing I'm reading suggests I'll need a pot of 500K+ which is really difficult to obtain, for me anyway. Never say never, but I highly doubt I'll manage that.

I'd love a thread where people who have actually retired tell us what their pot was on retirement and how they're managing, but nobody is likely to volunteer that information truthfully.

All going well mortgage will be cleared before then, children will be about 30. I'm wondering how much you reallllly need if not living a flash lifestyle, but I suspect even things like health insurance etc will gobble up chunks of it.

Ah to be fair you have a lot going on, if you have a stable job there's no major rush on the emergency fund! It's hard to keep all sides going especially with 2 young kids!
I'd be thinking if you max out your AVCs you could make 500k, your better off lumping into them now to gain some compound interest rather than later in life!

Maybe someone who has retired may jump on this post and fill us in a bit, but unlikely

Jim2007

TheBully wrote: »

Ah to be fair you have a lot going on, if you have a stable job there's no major rush on the emergency fund!

That would be a very big no. People wake to see their stable jobs disappear all the time - companies go bust, divisions close down or moved to other locations, people become incapacitated and so on.

You can never tell when you may need an emergency fund that is why you need to build it up. And it also means that you are no forced to divest yourself of an investment before it has come to maturity when you need funds.

My father in law (RIP) came out of teacher training college here in Switzerland at 25 and then spent 40 years teaching in the same school before he retired. So he was very surprised when his first months pension payment was less than 20% of what he expected! On investigation he discovered that somehow in their digitization and upgrade of their system they had lost 31 years of his contributions. Now not in a million years would someone think of this happening to a government employee especially one that did not even change his employer once in his working life. It took seven months to sort it out, seven months the couple needed to live of their emergency savings.

There is no way you can say with any degree of certainty that you will not need to dip into your emergency funds. It may not even be for yourself, it could be to help a family member, aged parents or some other relatives.

garrettod

Hi,

Retirement Planning is going to be different for everyone, so people shouldn't get too hung up on what someone else has managed to accumulate in their pension fund.

There are a few key things to consider :

Will you own your home when you retire, or will you still have to pay rent?

How will you pay for heath care, maybe a nursing home etc if it's needed, when you retire?

Where will you live, when you retire - will you live in a city, or a more rural part of Ireland, or maybe in another county with cheaper living costs?

Will you have any dependents to look after in retirement (a partner who never worked, perhaps?)?

Will you be eligible for the State pension, when you retire?

Will you have any form of income - such as rent from an investment property, or dividends from a share portfolio etc?

The above questions help people to consider what they might need, in retirement.

Ultimately, the trick is to try and get money into your pension, as soon as you can, because the fund then has longer to grow, before you need to draw on it.

That said, it's never too late to start contributing into a pension, particularly if you can get tax relief on your pension contributions at the higher tax rate.

jimmycrackcorm

The Mighty Quinn wrote:

All going well mortgage will be cleared before then, children will be about 30. I'm wondering how much you reallllly need if not living a flash lifestyle, but I suspect even things like health insurance etc will gobble up chunks of it.

It can all be for no gain if you're marriage breaks up. Apart from your partner gaining half your pension, in the interim, you will have to probably take out a second mortgage.

That's lots of breakups out there.

The Mighty Quinn

jimmycrackcorm wrote: »

It can all be for no gain if you're marriage breaks up. Apart from your partner gaining half your pension, in the interim, you will have to probably take out a second mortgage.

That's lots of breakups out there.

There are. But.. What do you suggest, don't make any attempts to provide for your future in case a jilted ex spouse gets some/half??

Dream123

Correct, your tax free level is based just on your contributions

dubrov

The Mighty Quinn wrote:

There are. But.. What do you suggest, don't make any attempts to provide for your future in case a jilted ex spouse gets some/half??

It's all about priorities. Provide for the present first, then the future

No point in scrimping during your working life only to have plenty of money in retirement that you don't enjoy spending

Jim2007

dubrov wrote: »

No point in scrimping during your working life only to have plenty of money in retirement that you don't enjoy spending

First of all we are talking about having sufficient funds to live comfortably and second people are living longer and in better health so you will almost certainly enjoy spending it.

The only time you have an opportunity to save is while you have an income and failing to do so on the off chance you might not enjoy spending it is foolish.

Jim2007

TheBully wrote: »

Maybe someone who has retired may jump on this post and fill us in a bit, but unlikely

Well I retired at 55.... I’m not going to tell you my pot, but I will say to retire in Western Europe you probably need around a million Euros in total wealth to generate sufficient income to do so.

Although I expected it, for some people it will be a shock, but you won’t be able to cut your spending anything near as much as you expect without it having a very significant impact on your life style. It does not matter if your income was 20k or a 100k, you have gotten used to a certain life style - the foods you buy, the restaurants and pubs you visit and so on. And while you will save on work related expenses it will be replaced by other expenses - hobbies, DIY projects, travel, more time meeting up with friends and so on.

The Mighty Quinn

Jim2007 wrote: »

Although I expected it, for some people it will be a shock, but you won’t be able to cut your spending anything near as much as you expect without it having a very significant impact on your life style. It does not matter if your income was 20k or a 100k, you have gotten used to a certain life style - the foods you buy, the restaurants and pubs you visit and so on. And while you will save on work related expenses it will be replaced by other expenses - hobbies, DIY projects, travel, more time meeting up with friends and so on.

Yeah this is the bit that worries me a bit. My father retired with a DB pension from An Post, he gets about 460 a week of a pension, is in his 60s now. He said that while he has built up a sturdy savings pot (100Kish) over his whole life, it is yet untouched some 3 years into retirement, his pension is pretty much fully spent each week between health insurance, DIY bits, utility bills, occasional travel, family occasions etc.

He said he's not worried he's living as good as he wants to now, safe in the knowledge that his pension pot doesn't run out, there's always 460 more next week.

I think he's right to do this, as he ages, he'll slow. He won't travel or eat out or do so much work about the place on hobbies, so he should enjoy his money when he's fit and able. As he slows, the 460 a week will still come in and likely just build up in the background without him using it. He owns his house, he owns a new luxury car he never could afford to drive when we were young.

Unfortunately, most of the rest of us will be on DC pensions. I suppose there's also the erosion of his DB pension with inflation to consider too.

The J Stands for Jay

jimmycrackcorm wrote: »

It can all be for no gain if you're marriage breaks up. Apart from your partner gaining half your pension, in the interim, you will have to probably take out a second mortgage.

That's lots of breakups out there.

So, you're saying it's prudent to on eat in your relationship?

The J Stands for Jay

Jim_Hodge wrote: »

There's a table here

https://www.joslinrhodes.co.uk/retirement-planning/can-i-retire-at-55/

Or here
https://www.unbiased.co.uk/news/financial-adviser/retire-at-55

and others are available.

Just beware that these are foreign websites referencing foreign tax/pension laws.

The J Stands for Jay

Jim2007 wrote: »

It does not matter if your income was 20k or a 100k, you have gotten used to a certain life style - the foods you buy, the restaurants and pubs you visit and so on. And while you will save on work related expenses it will be replaced by other expenses - hobbies, DIY projects, travel, more time meeting up with friends and so on.

It's best not to get into the habit of lifestyle inflation; save that for when you're retired.

Phoebas

A general rule of thumb is that your pension pot will generate an income of about 4%, so if you want a retirement income of 40k you need a pot of 1m.
That's if you invest in an Approved Retirement Fund (ARF), which carries risk. If you want a guaranteed income, you can purchase an annuity, buy you'll get a much reduced income.

garbanzo

Phoebas wrote: »

A general rule of thumb is that your pension pot will generate an income of about 4%, so if you want a retirement income of 40k you need a pot of 1m.
That's if you invest in an Approved Retirement Fund (ARF), which carries risk. If you want a guaranteed income, you can purchase an annuity, buy you'll get a much reduced income.

Is it not more realistic that after you take your €200,000 tax free lump sum you will be left with €800,000 upon which to base your drawdown.

So €200k in the bank and €32,000pa based on the 4% drawdown?

Jim2007

garbanzo wrote: »

Is it not more realistic that after you take your €200,000 tax free lump sum you will be left with €800,000 upon which to base your drawdown.

So €200k in the bank and €32,000pa based on the 4% drawdown?

We're taking about a rate of return not a drawdown. Drawdowns assume a replenishment rate and that has not lived up to expectations.

garbanzo

Can you elaborate on that Jim2007 ?

The J Stands for Jay

Jim2007 wrote: »

We're taking about a rate of return not a drawdown. Drawdowns assume a replenishment rate and that has not lived up to expectations.

We are talking about a drawdown, because the ARF rules require a drawdown.

Jim2007

garbanzo wrote: »

Can you elaborate on that Jim2007 ?

If you go back to some of the original documents on the topic, the 4% idea came with the assumption that you’d be able to replenish part of the capital sum via interest etc... and would be able to leave something to the relatives on death, as opposed to the typical private pension.

As with many things in finance there has been an over simplification, people are drawing down 4% and even a bit more to cover unexpected expenses while at the same time ignoring the fact that the return rate is practically zero. Which means they will burn through the cash much sooner than expected.

We celebrated my mother in laws 94th birthday today, if it was not for modern medicine she’d probably have died say 15 years ago. She has been retired for 34 years, probably longer than some of the readers have been a live! If she had gone down the drawdown road she would probably have been destitute for the past 10 or 12 years at least.

The point is that circumstances change and you need to regularly revisit your retirement plans and make whatever changes are necessary to ensure you have a comfortable retirement.

catrionanic

As a woman, these conversations freak me out. I'm currently on mat leave and work part-time because we have soon-to-be three small kids. My husband works full-time. I earn a lot less than my husband due to my reduced hours and missed career opportunities due to growing our family. My employer doesn't contribute to my pension whereas his does. I have my own PRSA and put in as much as I can but it will never be enough given my part-time hours and no employer contributions.

This gives me no option but to depend on my husband's pension in retirement. We've had a lot of marriage difficulties the last few years so that might not even be an option.

Sorry if this is somewhat of a thread hijack. Im not looking for advice. Just stating how un-level the pensions playing field is for women vs men.

Bass Reeves

I think over the next 20+ years the style of retirement will change. It will not be a sudden stop when you stop working completely and the are dependent on pension and savings. More and more now you see people looking at option such as working part time or working for part of the year.
WFH will facilitate this more and more. It may allow people to work 2-3 days a week and downscale you work activities while having more time off. This will suit many people allowing more time off without seriously drawing down pension funds.

I am semi- retired since I was 57. I took a redundancy package that give me over two years pay. I worked for six months the first year after retiring. I bought a farm and that was paid off by retirement. I did up am old farmhouse on it and that is rented, as well on 2016 I bought a cheap investment property.
Rental income is slightly over 15k ( I have costs out of it ), farming income is 20-25k. I will probably start drawing my pension in my 60's. My pension pot is over 50k. My better half intends to retire in the next 2-3 years. It is possible for here to consider working 2 days a week after she retired. She has a pot of about 4-500k

The Mighty Quinn

catrionanic wrote: »

This gives me no option but to depend on my husband's pension in retirement. We've had a lot of marriage difficulties the last few years so that might not even be an option.

This is a conversation I've had with my wife. We have two children, she's currently on mat leave, no employer top up, no employer pension contributions etc... Its a topic I'm acutely aware of.

Even though I live my my financial life on the "what's mine is ours" model in our marriage, I know my wife is uncomfortable with the "what if we split , and I've nothing", and I can't say I blame her, it leaves her vulnerable and in a way gives me a power I don't want.

The J Stands for Jay

The Mighty Quinn wrote: »

This is a conversation I've had with my wife. We have two children, she's currently on mat leave, no employer top up, no employer pension contributions etc... Its a topic I'm acutely aware of.

Even though I live my my financial life on the "what's mine is ours" model in our marriage, I know my wife is uncomfortable with the "what if we split , and I've nothing", and I can't say I blame her, it leaves her vulnerable and in a way gives me a power I don't want.

Don't worry, the law recognises this, and she can get her hands on your pension in a divorce though a pension adjustment order.

Jim2007

McGaggs wrote: »

Don't worry, the law recognises this, and she can get her hands on your pension in a divorce though a pension adjustment order.

Yes, but the reality is that whether you are male or female a pension pot split two ways is not going to be enough to run two traditional Irish households....

Oh the other hand if you are only using the kitchen and one bedroom 90% of the time do you really need a three bedroom house or do you really need the burden of having to care for such a property as you grow older? And you don’t have to live in a particular location.

You will have to make different choices if you do end up divorced, no doubt about it. I know one couple who split their house into two flats, neither are terribly happy about it. It is more a case of it being the least worse option than anything else.

Babslovesshoes

If both yourself and your wife have contributory state pensions, that is worth approx 24 k per annum. If you have a pot of 300k, that will give you another 12k. But pensioner couple is not taxed until they have an income of 36k. So that is 3 k per month into your hand. In order for you to have a pot of 300k from your 48k at age34, estimating a 7 % return, you won’t need to add anything else to it (you should though). Look at this compound interest calculator
https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

I am aiming for a pot of 800k on retirement, as 200k (25perecent) is the max you can draw down as a tax free lump sum. The next 300k is at 20%. The remaining 300k will give me an income of 1k per month

The J Stands for Jay

Babslovesshoes wrote: »

I am aiming for a pot of 800k on retirement, as 200k (25perecent) is the max you can draw down as a tax free lump sum. The next 300k is at 20%. The remaining 300k will give me an income of 1k per month

You've got that wrong. You can only take a 25% lump sum, on a fund of €800k you'll just be able to take 200k. 600k will go onto an A(M)RF, and any withdrawals will be taxed under PAYE.

Babslovesshoes

McGaggs wrote: »

You've got that wrong. You can only take a 25% lump sum, on a fund of €800k you'll just be able to take 200k. 600k will go onto an A(M)RF, and any withdrawals will be taxed under PAYE.

From the pensions authority website:
Currently, a maximum of €200,000 can be taken as a tax free pension lump sum. This is a total lifetime limit even if lump sums are taken at different times and from different pension arrangements. Lump sums between €200,001 and €500,000 are taxed at 20%, with any balance over this amount taxed at your marginal rate and subject to the Universal Social Charge.

Unknownability

Babslovesshoes wrote: »

From the pensions authority website:
Currently, a maximum of €200,000 can be taken as a tax free pension lump sum. This is a total lifetime limit even if lump sums are taken at different times and from different pension arrangements. Lump sums between €200,001 and €500,000 are taxed at 20%, with any balance over this amount taxed at your marginal rate and subject to the Universal Social Charge.

You're mixing up a few things.

The other poster is correct, the maximum you can take out of a pension fund without going done the annuity route is 25% and the balance to an A(m) RF.

You can access the ARF put its all taxable.

nompere

Babslovesshoes wrote: »

From the pensions authority website:
Currently, a maximum of €200,000 can be taken as a tax free pension lump sum. This is a total lifetime limit even if lump sums are taken at different times and from different pension arrangements. Lump sums between €200,001 and €500,000 are taxed at 20%, with any balance over this amount taxed at your marginal rate and subject to the Universal Social Charge.

What that means is that if you have a pot of €1,200,000, then you can take 25% - which is €300,000. Of that €300,000, €200,000 is tax free, and the remaining €100,000 is taxed at 20%.

Anything you take in excess of 25% of the value of the pot is taxed at marginal rates.

So your plan to take €300,000 as well as €200,000 out of a fund of €800,000, will give you taxable income in that year of €300,000, and a tax bill of approx €120,000 plus USC.

The J Stands for Jay

Babslovesshoes wrote: »

From the pensions authority website:
Currently, a maximum of €200,000 can be taken as a tax free pension lump sum. This is a total lifetime limit even if lump sums are taken at different times and from different pension arrangements. Lump sums between €200,001 and €500,000 are taxed at 20%, with any balance over this amount taxed at your marginal rate and subject to the Universal Social Charge.

Nothing there contradicts what I've said. The Pensions Authority website isnt a great source of information. It's extremely light on detail. The place to go is revenue.ie. The specific pdf you want is this one https://revenue.ie/en/tax-professionals/tdm/pensions/chapter-07.pdf

Babslovesshoes

McGaggs wrote: »

Nothing there contradicts what I've said. The Pensions Authority website isnt a great source of information. It's extremely light on detail. The place to go is revenue.ie. The specific pdf you want is this one https://revenue.ie/en/tax-professionals/tdm/pensions/chapter-07.pdf

Thanks for clearing that up. I’ll check out the revenue site

Happyhouse22

To answer the original question isn’t there something about having 25 times your annual expenses as a pension. That is if you live on 30,000 per year then you need to have 750,000 in the pension fund.

howamidifferent

You could subtract the state contributory pension from the €30k to needing ~€450k

The Mighty Quinn

howamidifferent wrote: »

You could subtract the state contributory pension from the €30k to needing ~€450k

Which may not exist in 30 years time.......
And if it does, likely to not be as 'valuable' as it is today

Jim2007

The Mighty Quinn wrote: »

Which may not exist in 30 years time.......
And if it does, likely to not be as 'valuable' as it is today

It will exist. Like the rest of Europe Ireland is moving to the typical three pillar system, with the state pension being the first pillar.

But as you say it will be less valuable because it will not be increased over time. That seems to be the common approach.

Happyhouse22

howamidifferent wrote: »

You could subtract the state contributory pension from the €30k to needing ~€450k

Ya this makes sense.

Then I guess more people will take 25% tax free so this will be added on.

E.g I need 30,000 (12,000 state pension + 18,000)

So 18,000 x 25 is 450,000. So if you want to take 25% at the start you would need a pot of 600,000.

athlone573

With low interest rates at the moment (specifically, long term government bond yields near zero) all the traditional rules of thumb for how much you need have gone out the window.

You should get an annual statement from your company scheme or broker if private pension with some projections which would be a reasonable starting point to see if you're on track.

Happyhouse22

athlone573 wrote: »

With low interest rates at the moment (specifically, long term government bond yields near zero) all the traditional rules of thumb for how much you need have gone out the window.

You should get an annual statement from your company scheme or broker if private pension with some projections which would be a reasonable starting point to see if you're on track.

Is this because the 4% rule presumes you can make at least 4% returns from your investments eac year? And with interests rates so low this may not be possible?

Jim2007

This is an exercise in long range forecasting and accuracy is not an option unless you are nearing retirement age, so a simple approach is as good as a complex one, the key is that you revise it on a regular basis and make the necessary adjustments as you go along.

My source of wealth was always salary or consulting fees plus capital gains from investing. So I used the formulas:

((Current Income * 65%) - state pension) / 3.5%) = required pot

Required pot - current projection of pension pot = short fall that needed to be made up

Of course it was not accurate, but it was enough to get me where I needed to be by the time I reached 55.

PhilOssophy

My only advice to you OP is to max out what you can afford for now, and if you can afford it take full advantage of the last real tax break. I.e. whatever age you are at, maximise the pension contributions.
That said, I often wonder are pensions a bit of a scam - the lack of clarity around pension fees, management fees, its so un-transparent. Labour recently raised a bill on this as far as I know and while I'm no supporter of the party, I welcome this attempt at clarity regarding fees in this sector.

Raoul Duke III

PhilOssophy wrote: »

My only advice to you OP is to max out what you can afford for now, and if you can afford it take full advantage of the last real tax break. I.e. whatever age you are at, maximise the pension contributions.
That said, I often wonder are pensions a bit of a scam - the lack of clarity around pension fees, management fees, its so un-transparent. Labour recently raised a bill on this as far as I know and while I'm no supporter of the party, I welcome this attempt at clarity regarding fees in this sector.

I find if you dig into the fund prospectus, you can find the fund AMC detailed there and then the pension scheme bumpf contains the detail of the charges that the administrator applies (which is generally capped).

Agree with your point though.
Why can it not be possible, when you receive your annual pension statement to see what fees were deducted? After all, you can see to the penny what your own and your employer contributions were.
So if I have a fund of 600k for example, how much was taken out of that as fees in 2020....right now, it's a mystery!

This would drive accountability and transparency in the sector which is badly needed.

bob mcbob

TheBully wrote: »

I started my pension late, not very late but later than I would have liked! For this reason, last year I started doin AVC's.
I'm 34, and I worry about my future. I'm currently putting 6% of my salary into my pot along with an additional 6% in AVC's, my employer puts in an additional 9%.
I currently have €48000 in the pot, with a forecasted 500k at retirement.

I know I will have more than others at retirement but I am pushing myself with the AVCs.
My question is, is this a decent enough pot, is it the average pot?
I'd like to max out my AVC contributions but I'm not financially able at the minute! What kind of pension pot have u guys?

I will add my experience in here as someone who financially can afford to retire but have not done it fully yet.

This is not for everyone but just want to share.

I started investing in a pension in the 90's and built up a reasonable pot 20/30K or so. With my spare cash I started investing in stock market funds. After a while I noticed that the cash I was investing in funds was growing a lot faster than my pension fund. Due to employment changes (in 2000 I went freelance) I stopped paying into a pension fund and instead built up a pot thru stock market funds and stock market investments.

Where do things stand now from my experience -
- investing in stock market funds, I have primarily invested for growth and I have seen my investments double every 8 years or so. I have not had any need to dip into this as yet
- stock market - this started for growth and now is more towards income. The income from this could pay my yearly living expenses.
- pension pot - as I said I stopped paying into this around the year 2000 and it was then valued at 20-30 K now 20 years later it is valued at 30-40K. There is no comparison with this and my other investments.

So my experience is - pension funds are good for tax and employers contributions but their performance leaves a lot to be desired.

The J Stands for Jay

bob mcbob wrote: »

it was then valued at 20-30 K now 20 years later it is valued at 30-40K. There is no comparison with this and my other investments.

Can you let us know what fund this is so we can all avoid it?

Raoul Duke III

bob mcbob wrote: »

So my experience is - pension funds are good for tax and employers contributions but their performance leaves a lot to be desired.

That is a very small sample size though - 1 self-employed person's experience.

For anyone who is employed, the combination of 40% tax relief plus an employer contribution is unbeatable.

Say for example, we're going to invest in equity Fund A.

We have two people; Tim and Tom. Both 40 years old. Both employed in the same job, both earning 100k. There is a company DC scheme and the employer will match up to 10%.

Tim elects into the scheme and choose to make the max contribution of 25% p.a.
Tom elects not to join the scheme and decides to manage his own investments.

Here's the breakdown of how their finances look at the end of the year:

Tim Tom
Gross Income 100,000 100,000
Pension Contribution 25,000 -
Taxable Income 75,000 100,000

Taxes\PRSi\USC 28,304 38,304

Net Income 46,696 61,696

Pension Contributions
Own 25,000
Employer 10,000
Total Pension Contributions 35,000 -


Tom has 15k more income but - crucially - Tim has put 35k into his pension fund.

Tom is worse off than Tim. Now he does have the luxury of making his own investment choices but I would propose that the tax benefit and the employer contributions far outweigh this.

Simply put; as a PAYE worker, this is the biggest break you will ever get. You would be foolish not to take advantage of it.