Paying a pension is like donating your money to a stranger

Markus Antonius

With a new "opt-out" corporate pension system being introduced to replace the current "opt-in" system, it raises a question I've always had especially for the 20-35 year old age group - Why on earth are you obsessed with paying so much into a pension?

-You are young

-You are broke

-You need a place to live

-Holidays to go on

And you are making aditional contributions out of your pay because why? You get a tax break and a contribution from your company? Is this really worth it?

You need this money now, stop donating to to a future version of yourself who you probably don't even like all for the benefit of blood thirsty pension companies

Kevhog1988

https://www.boards.ie/discussion/2058267019/paying-a-pension-is-like-donating-your-money-to-a-stranger

Mine is paid by the company without a contribution by myself

Brussels Sprout

who you probably don't even like 

wtf

gameoverdude

https://www.boards.ie/discussion/2058267019/paying-a-pension-is-like-donating-your-money-to-a-stranger

Eh...I'm not too sure how to respond to this.

If you're on a higher tax rate, you're getting around 50% extra plus company contributions for your future self.

Enjoy your holidays and cheap beer. I'll enjoy my retirement.

Once you get use to it, you budget accordingly. Won't miss it.

HeidiHeidi

Because what do you plan to live on when you stop working?

Leg End Reject

I pay because I don't want to be hungry in a cold house when I retire.

joseywhales

Maybe I don't want to work forever?

Cluedo Monopoly

I feel people should manage their pension breakdown/split more. Everyone seems to put their faith in the pension providers. For example I change my pension a few months ago to have less equity/shares and it has already saved me a few bob. Not many shares have risen in last few months. I will increase equity when I feel market has neared the bottom.

elperello

https://www.boards.ie/discussion/2058267019/paying-a-pension-is-like-donating-your-money-to-a-stranger

Sit down and talk to a retired person who put some money in their pension and have a chat with them about how they got on.

I know a few who are very glad they provided for their old age.

Pissy Missy

If you've ever been unfortunate enough to be on social welfare, you'll see how limiting, stressful and soul destroying it is. Absolutely no way I want to live like that for my retirement. A pension/future investments are the way forward.

gameoverdude

https://www.boards.ie/discussion/comment/119731386#Comment_119731386

Euro millions for the win! Just believe.

Pissy Missy

https://www.boards.ie/discussion/comment/119731399#Comment_119731399

Yes please 🙏

Markus Antonius

https://www.boards.ie/discussion/comment/119731028#Comment_119731028

That's betting on you being alive at retirement (touch wood), a retirement that will in all likelihood extend into the 70s at some point.

How many times have you heard an OAP say "My one regret in life was that I didn't pay more into my pension when I was in my 20s"

https://www.boards.ie/discussion/comment/119731041#Comment_119731041

The public pension and the wealth accumulated throughout my life that would have been translated into forms that won't be ravaged by inflation or gambled on the stock market

gameoverdude

https://www.boards.ie/discussion/comment/119731424#Comment_119731424

None, but I've heard quite a few saying they wished they started a pension earlier, if not for themselves but for next of kin.

I started one at 22. Don't miss the outlay as I'm used to it.

Markus Antonius

https://www.boards.ie/discussion/comment/119731440#Comment_119731440

A few weeks ago I was chatting to a colleague of mine and she was moaning about how she was living from paycheck to paycheck and how everything is so expensive etc. I asked her if she was paying AVCs and she was maxed out!

Ridiculous! And such a widespread problem because the pension companies send their scheming salesmen out to give these corporate talks where they spread the filthy rumour that it's a bad idea to not start as young as possible - then everyone gets fearmongered and starts spreading it to everyone else.

gameoverdude

https://www.boards.ie/discussion/comment/119731463#Comment_119731463

Don't be asking me for fiver in a few years.

greyday

So my employer pays 5% and I pay 10% of which the state pays approximately 4%, to be very basic, I put 100 per week in and and between my employer and the state they pay another 150 in and you think this is stupid, figures are not exact but close enough to show you this thread is an absolute joke, Equities have also been proven over time to be one of the best types of investments, You should already be rich if you can beat this type of investment.

Markus Antonius

https://www.boards.ie/discussion/comment/119731468#Comment_119731468

I pay enough PRSI. I get nice juicy paychecks every month because the pension funds can't dig their long nails into my money!

Just because I'm getting the money now, doesn't mean i'm being irresponsible with it.

L1011

https://www.boards.ie/discussion/comment/119731479#Comment_119731479

So you're paying tax to invest for the future when you could be doing it tax free?

Akrasia

You have 5 decades before you retire. In the past 3 decades we have had the Tech bubble market crash, the 2008 financial crash, the housing crash, the 2023 crash.... All of these wiped out pensions (which were in turn bailed out by tax payers)

You not only need to invest for your pension, you need to be lucky in those investments or else you could see your savings wiped out or inflated away several times between now and your retirement.

A lot of the people who are living it up now with good pensions had defined benefit pensions from the golden age before the ladder was hoisted up behind them and we're all left with defined contribution pensions that could be worth nothing if another crash happens just before your retirement

You could try to hedge your pension by buying land or gold or gambling on bitcoin or tulips or NFTs, but it's all just the luck of the draw for the middle classes.

gameoverdude

https://www.boards.ie/discussion/comment/119731479#Comment_119731479

I'm lost.

So pension funds need nail clippers?

On the pigs back with that business plan.

As flippant as my statement above, I do believe financial planning is prudent.

I'll freely admit I'm crap with money. Take it off me!

MakersMark

https://www.boards.ie/discussion/comment/119731041#Comment_119731041

Why the good old taxpayer of course!

Markus Antonius

https://www.boards.ie/discussion/comment/119731478#Comment_119731478

You talk as though this is a bullet proof plan! Think of all the poor souls who worked themselves to death (so to speak) only to find them selves prematurely dying in their 40s, 50s, 60s. Depressing to think of all the extra things they might have experienced if they kept that money for themselves.

Not to mention the fact that a giant recession could hit the year you retire which would annihilate your return

greyday

https://www.boards.ie/discussion/comment/119731463#Comment_119731463

If she is living from pay check to pay check now, how do you think she will get on living of the state pension if she doesn't top it up with her own contributions?

Akrasia

https://www.boards.ie/discussion/comment/119731505#Comment_119731505

The good old tax payer who have spent countless billions bailing out banks and pension funds in recent years...

The national pension reserve fund was cleaned out in 2008 to protect private savings and pension funds (mostly for the super rich)

If that money was invested in the state we might be able to afford a decent state contributary pension

greyday

https://www.boards.ie/discussion/comment/119731496#Comment_119731496

There is a period about 8 years before you retire where the pension company winds down your exposure to equities, after each of the crashes you mentioned, the S&P still reached record highs afterwards.

MakersMark

https://www.boards.ie/discussion/comment/119731496#Comment_119731496

You dont appear to understand the markets.a pension plan that mirrors the S&P 500 will do exceptionally well over 50 years.

Mine, started in 1994 with a salary percentage of 3%, matched by employer ran for 12 years. No more contributions since 2006.

Hit a high of nearly 900k, down to 650k now. Been thru all the recessions.

I expect it to double in the next 8 years, even taking into account t the projects 20% market slump this year.

The only pension plans that failed were those investing in a singular stock. Diversified investments have flourished.

Markus Antonius

https://www.boards.ie/discussion/comment/119731512#Comment_119731512

What good is having all that money when you are ravaged with arthritis or have some other debilitating illness which makes going on a holiday sound like hell? The amount of elderly who have no idea what to do with thier money is astonishing! They end up using it to fatten their grand children or donating it to the local priest in their will if they have no children for themselves

Akrasia

https://www.boards.ie/discussion/comment/119731509#Comment_119731509

And if you have a modest pension, the state will take most of it to pay for your nursing care if you're unlucky enough to live long enough to waste away in a nursing home

greyday

https://www.boards.ie/discussion/comment/119731509#Comment_119731509

Think of all the poor souls who lived beyond retirement age but didn't have a pension, I would suggest they lived a far worse life than their neighbour who was prudent and did have a pension, even if I die before retirement age, its a nice nestgg for my family to do as they please with.

Akrasia

https://www.boards.ie/discussion/comment/119731532#Comment_119731532

How low did it go after the last big crash in 2008?

greyday

https://www.boards.ie/discussion/comment/119731548#Comment_119731548

2008 ended up being a great boost for pensions in the long run as stocks were cheaper to accumulate in your pension fund, basically every crash in the stock market thus far has been an opportunity of a lifetime to accumulate wealth, this is a fact to this point in time.

greyday

https://www.boards.ie/discussion/comment/119731536#Comment_119731536

Much better to have it and not know what to do with it rather than not having enough to live comfortably, personally I hope to have enough to look after my grandkids when the time comes, what people do with their money is their business.

amacca

https://www.boards.ie/discussion/comment/119731424#Comment_119731424

Look, it's a way to go but why not hedge your bets or don't put all your eggs in the public pension other investments I can make basket (even though in theory that could be quite diversified etc)

I've often met older people that seemed to have rolled along and almost made a pension an aftetthought...not one of them ever whinged about having it

At the end of the day if you are on the high rate of tax your getting what 40% of your contributions back in that you would have contributed it to the govt for nothing? unless you can claim it back some other way...see it like a long term savings scheme with instant 40% interest, it may be locked up but unless you croak it before you get to it thats a decent savings account

Then you do have choice of companies/fees etc so you can tailor to a degree within the rules to suit your strategy

Just contribute what you can to get the tax relief would be my initial thought...obviously though maybe do that after you have raised the capital for the other investments ...

Akrasia

https://www.boards.ie/discussion/comment/119731563#Comment_119731563

If you had liquidity to buy the stocks low after the crash, you would have been much better off than having bought them when they were high, through your pension fund, and then just waiting around for the market to eventually recover

My wife's father died in 2009, he had invested his money in 'the banks' which were nationalised after the crash he lost everything just before he died leaving his widow with very little other than the cash savings he had in the bank and a small life insurance policy.

Maybe if he lived another 10 years he would have recovered that investment, but he didn't.

Pensions are a good long term investment, except when they're not, and with massive crashes happening every 8-12 or so years over the past few decades, a lot of people will end up facing retirement with less than they put in, especially with inflation eating away at their gains

Private pensions are seen as the alternative to state pensions, and people on the contributary OAP are seen as 'living off the tax payer'

A lot of people who think like this now, will regret not demanding a better state pension when they get to retirement age.

greyday

https://www.boards.ie/discussion/comment/119731586#Comment_119731586

Investing in banks is stock picking, investment funds are diversified which protects them from the shocks like the banks had in 2008.

As I said previously, Pension funds start unwinding equity positions in pensions approximately 8 years before the pension falls due to protect the bulk of the investment, this is a default position and you have to request this unwinding not to happen to stay fully invested in equities/bonds for the remainer of the pension term.

Jim_Hodge

https://www.boards.ie/discussion/comment/119731479#Comment_119731479

If you are using any of it to ensure a comfortable retirement then fine but you're doing it with no tax incentives and I doubt you're earning 8%+ pa as my pension fund will. I'll admit it was tight at times paying a pension in the early days of mortgage and rearing a family but it was absolutely worth it. I'm now retired with an impressive lump sum tax free and a healthy ongoing pension income. Get a pension and get it when you're as young as possible. Don't leave yourself skint but also try to make as much use of the tax incentives as you can. In years to come those who opt out may not see the level of state pension available today.

dotsman

OP, you are not investing in a pension in your 20's just for the benefit of your 70's. You are doing it for the benefit of your 30's and 40's. Because if you leave it to 40 to decide it's time to care about your pension, you will find it is too late to achieve a decent one. Every euro you put away in your 20's is worth many, many times that by the time you retire, even with inflation taken into account.

At the age of 25, if you put €1 into your pension fund, if matched by your employer, that euro becomes almost €4 straight away. By the time you are 35, it will likely be worth double that adjusted for inflation (€8). By the time you are 45, it will hopefully have doubled again (adjusted for inflation), giving you €16. Moving into lower risk funds after that, you might hope that it will double again over the next 20 years (adjusted for inflation), giving you €32 on your retirement.

For most people, it will simply be the best thing they ever did with money.

Yes, during your 20's and 30's you may have a lower wage (especially in your 20's), and lots of competing priorities for that money, so nobody expects you to be putting away huge sums, but you will be grateful for every euro you invested by the time you are in your 40's and realise you still have a long way to go before reaching your pension goals.

For example, if, at the age of 40 you decide you need €1 million in your fund by retirement to sustain the lifestyle you currently have, you may find that, if starting from scratch, that it is simply a mountain too big to climb. But even having €200K of that already in your fund will go a long, long way to helping you achieve that target (i.e. that €200K at 40 may result in €400K to €500K by retirement age simply through investment returns, meaning you only need to build up the remaining €500K to €600K from age 40), which would be a more realistic option for you.

https://www.boards.ie/discussion/comment/119731496#Comment_119731496

I'm not sure what you mean by "wiped out", or "bailed out by the taxpayers".

Yes, when investing, there are good years and bad years, but the good years more than make up for the bad ones, leaving you with a good average over a long term. If we look at the S&P 500, a poplar index and measure of "wall street performance", since January 1993 (the last 30 years), it is currently up over 1,050% as of today. Yes, that means an investment 30 years ago is worth 10 times that today. Obviously, we need to adjust for inflation, which brings that down to 580%. Not bad, given we are currently in the middle of a huge bear market and suffering ridiculous inflation rates.

Crashes don't result in the entire fund being wiped out, simply that some of the gains from previous years are surrendered. This is not a problem in any way. And it is why one typically invests in high risk funds up to their 40's (so there is sufficient time to recover from the most recent crash) before de-risking to low yield funds, and then finally moving to very-low risk/yield funds in the years approaching retirement.

Pensions are for idiots. The smart people will just spend the last payment they get before retirement on scratchcards.

pjohnson

I was wondering why such a scheme was needed as people are surely smart enough to plan ahead but with the OP's approach to planning for retirement I understand why its needed.

the_amazing_raisin

https://www.boards.ie/discussion/comment/119731536#Comment_119731536

Yeah so I think someone needs to sit you down with some actuarial tables. Current life expectancy in Ireland is 82 years, so assuming you're going to die before 70 is probably not the best plan.

If you do end up with some sort of debilitating illness, then I imagine having cash on hand would be ideal to make your day to day life easier.

Imagine for example you have trouble getting up stairs and need a chair lift. You can fight with the grant scheme or the HSE or just pay for the damn thing and you have it straight away

I agree that making contributions to the point of destitution is not really a good idea. But I think you're exaggerating how much money you could gain by not contributing

For example if I take your friend who's living paycheck to paycheck. I've no idea about their circumstances, but lets say she's on €25k and is 25 year old. In this economy that's about the right amount of money to barely fend off starvation

Okay so if she's maxed out her contributions then she's putting 10% or €2.5k into her pension each year. If she drops that to 0%, then that's a bit under €2k back in her pocket after tax

Since she's living paycheck to paycheck, let's assume any extra goes to savings or investments

€2k a year isn't really gonna amount to much unless you happen to invest in the next Tesla or Bitcoin

I think she'd be better off looking for ways to make more money. Not trying to be flippant about it, but the simplest way to get more money is to get paid more

Now perhaps there's a way that she could put her current pension contributions to better use to upskill or something to get a better paid job. But I would consider that a short term sacrifice to make the longer term plan of saving for the future more viable

Also, regarding your comment about elderly people with more money than they know what to do with, I imagine if they did have so much cash on hand they would simply give it to their children to help with the deposit on a house.

Personally, when I'm older and my children are buying their homes, I am hopeful that I will be able to contribute to their deposits and then they can get a smaller mortgage and not spend their 30s in borderline poverty like I did

rosmoke

Well, financial companies are looking for investors, state is looking at keeping the economy running.

My question is why does the state offers tax free AVC? If it's in good faith why they don't offer gouvernmental bonds or give you other ways of investing your money, such as buying a rental/business with your own tax free money?

I'm a bit skeptic of Uncle Sam, retirement age keeps increasing, thinking that it's just a plan for the state to stop the state pension and leave us on our own.

Markus Antonius

https://www.boards.ie/discussion/comment/119731492#Comment_119731492

I'm paying tax to put the money to good use right now while it's more valuable (value = money that has not been ravaged by inflation/economic factors at a time in my life when I need it more than ever)

https://www.boards.ie/discussion/comment/119731627#Comment_119731627

I understand all of this and still stand by what I'm saying. I would much prefer one euro now than 32 on retirement purely down to the fact that I am in the prime of my life when money is needed most.

Who's to say I won't get a directorship in a multinational in my 40s that pays 150K a year? Then it would make sense to plough money into the pension - better contribution from employer and better foresight on what retirement will look like.

It's all about not following a mindless plan that, at the end of the day, really only benefits ponsion funds

Markus Antonius

https://www.boards.ie/discussion/comment/119732584#Comment_119732584

Exactly, and this would have the added benefit of stimulating the economy and creating solid domestic job opportunities. The government cannot stand not having people suckling off their teat in some way.

Danno

I'd much rather pop the contributions in a safe account and when I hit 66 take it all out and go wild in Vegas.

At least I'd be the one enjoying the rush of the gamble.

Giving someone else your money to gamble with - feck that, why would they give two fooks about losing it?

dotsman

https://www.boards.ie/discussion/comment/119732584#Comment_119732584

The state doesn't offer tax free AVC. The only "tax free" element to your pension is the lump sum. The rest is tax deferment. Instead of paying tax at the marginal rate now, you are putting the money aside before tax and investing it and then drawing down post retirement when you have no other taxable income.

The state does offer government bonds, and some of your pension fund may even end up investing in them, but they don't even match inflation, so why would you think that's a good idea?

You can be sceptical of Uncle Sam all you want, but this is Ireland, so I have no idea what you think the US Government have to do with your pension.

https://www.boards.ie/discussion/comment/119732588#Comment_119732588

I understand all of this.

I really don't think you do!

I would much prefer one euro now than 32 on retirement

And what do you intend to live on when you are too old to work? And how rich do you think you will be that you will be happy to forego such an amazing investment return?

Who's to say I won't get a directorship in a multinational in my 40s that pays 150K a year? Then it would make sense to plough money into the pension - better contribution from employer and better foresight on what retirement will look like.

If you start making €150K in your 40's, and haven't started a pension, then you are double-fcuked. You will need a significant pension fund to enable you to retire at the living standard you will have grown accustomed to, and thus need an even larger amount saved by the time you are 40. Basically, while all pension planning is based on assumptions etc, whatever amount you aim to retire on, you should aim to have approx 40% of it funded by your contributions/investment prior to 40.

Exactly, and this would have the added benefit of stimulating the economy and creating solid domestic job opportunities. The government cannot stand not having people suckling off their teat in some way.

I really have no idea what you are trying to say here.

Some people just don't understand pensions, which is a pity for them.

Jim2007

https://www.boards.ie/discussion/2058267019/paying-a-pension-is-like-donating-your-money-to-a-stranger

If you don’t like being young and broke, you’ll like it even less when you are old and won’t be able to make a change. And on top of that most people don’t want to have to work till retirement age. I got out at 55 as did most of my friends - there is a lot of things you can do when the week consists of six Saturdays and one Sunday and stretches out for 15, maybe 20 years, but it takes money - four holidays, a couple of weekends a way, concerts, football matches and days or weekends spend on hobbies do not come cheap.

Work hard, get out as early as you can and enjoy life.

y0ssar1an22

i hope they dont get rid of the SW pension, but i reckon they will eventually; or at least means test it out of oblivion.

y0ssar1an22

...

Jim2007

https://www.boards.ie/discussion/comment/119731424#Comment_119731424

Here is the thing, nobody actually gives a crap about what you do for a pension beyond perhaps your dependents. Now you have two choices you can listen to the small number of people spouting baseless nonsense because it suits you not having to do anything or you can concentrate of actual research documents, the choice is yours. The internet is full of well researched documents etc, so you have no excuse. Here is a link, if you are even interested: https://tweedy.com/research/papers_speeches.php

This is not a decision you can reverse later. Investing works best when time is your friend, the risks you have to take later in life to build up a pot are more likely to fail. And retire voters are very selfish - they are not big on voting for public services and social welfare, ask any young family in Florida, so don’t count on anyone sharing their pot with you.