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Why are people obsessed with getting a pension

Midlife crisis man

What's the point having one.

About myself: I don't have a pension. I came from a poor background and was never thought about the importance of financial awareness.

I struggled throughout the recession eventually going back to college. I'm in my mid 30s now recently started working in the public sector. I'm only on 25k per year. I'm not entitled to the public sector pension because I'm on a fixed term "trainee" contract in my field.

Also if I happen to stay in the public sector for the rest of my career I won't be long enough to get the cushty 40 year pension anyway.

So, in the next 30 years the retirement age will probably be closer to 70. Why save the bollox off myself just so I have a bit of cash when I'm an auld fella with (best case scenario) 10 years of life left. Who needs that much money at that age. Am I missing something here? You can't take it with you when you die.

I'm sure I'll have a good bit of regular savings by then but what's with the obsession of pumping as much money as you can into a pension (that'll end up getting raided by the government in subsequent recessions anyway)

I'm going to enjoy my money while I have health and vigour and the government can look after me when I'm an auld boy.

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[Deleted User]

You could possibly take the entire €55k as a tax free lump sum, that might be a good option or a bad option for you ........ it may well not be an option at all.......but if it is and you intend to carry on working and paying the higher rate of tax you can contribute to another pension and avail of tax relief so it might well be worth considering.

donkey balls

Has anyone drawn down on a private pension when they turn 50? While also still working away paying the higher tax rate.
I'm going be heading for such a scenario in the next 3/4 years, I don't know whether to keep it in the fund till retirement at present its value is 55k.

[Deleted User]

Yellow_Fern wrote: »

........... Anyway there is no reason that someone is more likely to incur high fees outside a pension wrapper.

....

apart from Degiro and similar buying and selling stocks in Ireland outside of the pension wrapper is fee heavy.

You cannot dispute that while reckoning "The finance industry has siphoned off unacceptably high fees as a rule until recently" wrt pensions.

Yellow_Fern wrote: »

............

\tax relief on pension contributions is are related and the most generous reliefs are only available for 60s and older, which in itself is pretty mad gov policy. and yes it has to do with compounding.

By the most generous you refer to the below scale........
.......Age Limits

30 – 39 20%
40 – 49 25%
50 – 54 30%
55 – 59 35%
60 and over 40%

That is a subjective opinion.

With an OCP the % is for the employees own contributions so it's quite generous for many across all age groups.

Your comment quoted below is 100% incorrect.

Yellow_Fern wrote: »

............. The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

Yellow_Fern

Augeo wrote: »

https://www.labrokers.ie/prsa-pensions/
Annual management charge 1%*
Actual Allocation rate 100%
Out of this 1% annual management charge, LABrokers are paid a commission of 0.25% by Zurich

Really easy to avoid unjustifiable high fees in pensions.

The finance industry has siphoned off unacceptably high fees as a rule until recently. It can be avoided but it has been the exception. Anyway there is no reason that someone is more likely to incur high fees outside a pension wrapper.

Augeo wrote: »

It's tax relief for those paying the higher rate.
€60 out of your net wages can be €100 in your pension, it's nothing to do with compounding or being over 60.

\tax relief on pension contributions is are related and the most generous reliefs are only available for 60s and older, which in itself is pretty mad gov policy. and yes it has to do with compounding.

S.M.B.

Yellow_Fern wrote: »

This chap's fee comparison doesn't explain everything. The 1% stamp duty is to do with Irish traded stocks only. Pension funds have their own fees and most people tend to pay unjustifiable high fees in their pensions. Thankfully there are ways it can be avoided in self administered pensions. This whole area requires a good understanding to get a decent return. The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

Some of the main providers that have appeared in the wake of auto enrolment in the UK are pretty bad for fees, range of investment options and actual returns.

I'm loading up on my pension contributions due to a combination of being in a higher rate tax band, having access to salary sacrifice, my company having negotiated a very low annual fee (0.33%) with my pension provider and there being a very decent selection of funds to invest in but not everybody has such favourable circumstances.

[Deleted User]

Yellow_Fern wrote: »

........ Pension funds have their own fees and most people tend to pay unjustifiable high fees in their pensions. Thankfully there are ways it can be avoided in self administered pensions. .......

https://www.labrokers.ie/prsa-pensions/
Annual management charge 1%*
Actual Allocation rate 100%
Out of this 1% annual management charge, LABrokers are paid a commission of 0.25% by Zurich

Really easy to avoid unjustifiable high fees in pensions.

Yellow_Fern wrote: »

........The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

It's tax relief for those paying the higher rate.
€60 out of your net wages can be €100 in your pension, it's nothing to do with compounding or being over 60.

Yellow_Fern

S.M.B. wrote: »

I wasn't aware of the extent of the taxes and charges on investing outside of a pension in Ireland right now. That's pretty significant when you break it down to that level.

Is there ever any talk of having a tax free alternative in Ireland like in the UK?

This chap's fee comparison doesn't explain everything. The 1% stamp duty is to do with Irish traded stocks only. Pension funds have their own fees and most people tend to pay unjustifiable high fees in their pensions. Thankfully there are ways it can be avoided in self administered pensions. This whole area requires a good understanding to get a decent return. The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

S.M.B.

Yeah, talking through this scenario has highlighted how difficult it would be to meet the assumption of getting the same 5% return both inside and outside the pension wrapper in Ireland given there's no alternative tax free investment vehicle.

Makes the pension a more obvious choice in most scenarios.

[Deleted User]

S.M.B. wrote: »

What's the roll up difference?...........

"I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year. In 20 years I now have a pot of €24,764.78 which consists of a decent €10,364.78 in interest and €14,400.00 in deposits.

2) I put €100 into my pension for 20 years while getting a return of 5% excluding fees (no tax is due) each year."

In your hypothetical case both options grow at 5% per annum, you'd need a real return of 10% to achieve that net. You aren't factoring that in so there's a significant roll up difference.

Also, transaction fees can be significant on the small amounts you are investing net .......... investment via pension are lighter fee wise. There are of course managment fees but 1% is easy to find.

apologies......... I just saw this.....

S.M.B. wrote: »

I wasn't aware of the extent of the taxes and charges on investing outside of a pension in Ireland right now. That's pretty significant when you break it down to that level..........

bilbot79

[Deleted User] wrote: »

I have the 40 year local authority public service pension, went in at 17. I was so reluctant to take up the job, where you were infantilised so much, only about a quarter of my working life was in any way enjoyable. Working hours were unsociable, but at least some part of the time I could use my creativity. The big plus is the pension I now have as I was able to retire at 57. It means I can now enjoy life thoroughly, and travel...when there isn’t a lockdown per se. At this stage in my life I am more adventurous than ever, and when retired one is not restricted by annual leave. So I would say to anyone, do go for whatever it takes to have a decent enough pension, as your lust for living rarely de teases with age.

This is so gonna be me. Planning to retire at sixty and gallavant around the place

S.M.B.

McGaggs wrote: »

You've missed out that your after tax investment will have been taxes along the way. If it's in a fund, there's a 1% levy on the way in, and 41% tax on the growth deducted every 8 years and when you make a withdrawal. If it's direct investment in shares, there's 1% stamp duty (I may have that rate wrong), dividends will be paid to you, so they'll be subject to income tax and you'll need to reinvest them to get a decent return which means more stamp duty, then there's 33% CGT to be paid whenever you sell a share. That's a big drag on your returns on top of using post tax money.

Don't forget that OAPs have higher tax thresholds, so they can have higher pension income without paying tax.

I wasn't aware of the extent of the taxes and charges on investing outside of a pension in Ireland right now. That's pretty significant when you break it down to that level.

Is there ever any talk of having a tax free alternative in Ireland like in the UK?

The J Stands for Jay

S.M.B. wrote: »

Expanding on this hypothetical situation, I can either pay 40% tax now, or 40% tax later.

1) I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year. In 20 years I now have a pot of €24,764.78 which consists of a decent €10,364.78 in interest and €14,400.00 in deposits.

2) I put €100 into my pension for 20 years while getting a return of 5% excluding fees (no tax is due) each year. In 20 years I now have a pot of €41,274.63 which includes a lovely €17,274.63 in interest and €24,000.00 in deposits. On drawing down this money I am charged 40% on each payment. I end up with €24,764.78 in my bank account.

Apologies if I've completely misunderstood your point but to me the ''investment growth on the tax-free money" is only significant if the amount of tax you are liable to pay now far exceeds the amount you would be liable to pay in the future, which is highly likely but not guaranteed.

Or maybe there's something I'm failing to wrap my head around.

You've missed out that your after tax investment will have been taxes along the way. If it's in a fund, there's a 1% levy on the way in, and 41% tax on the growth deducted every 8 years and when you make a withdrawal. If it's direct investment in shares, there's 1% stamp duty (I may have that rate wrong), dividends will be paid to you, so they'll be subject to income tax and you'll need to reinvest them to get a decent return which means more stamp duty, then there's 33% CGT to be paid whenever you sell a share. That's a big drag on your returns on top of using post tax money.

Don't forget that OAPs have higher tax thresholds, so they can have higher pension income without paying tax.

maestroamado

Deleted User wrote: »

I have the 40 year local authority public service pension, went in at 17. I was so reluctant to take up the job, where you were infantilised so much, only about a quarter of my working life was in any way enjoyable. Working hours were unsociable, but at least some part of the time I could use my creativity. The big plus is the pension I now have as I was able to retire at 57. It means I can now enjoy life thoroughly, and travel...when there isn’t a lockdown per se. At this stage in my life I am more adventurous than ever, and when retired one is not restricted by annual leave. So I would say to anyone, do go for whatever it takes to have a decent enough pension, as your lust for living rarely de teases with age.

Have you a young wan?

[Deleted User]

I have the 40 year local authority public service pension, went in at 17. I was so reluctant to take up the job, where you were infantilised so much, only about a quarter of my working life was in any way enjoyable. Working hours were unsociable, but at least some part of the time I could use my creativity. The big plus is the pension I now have as I was able to retire at 57. It means I can now enjoy life thoroughly, and travel...when there isn’t a lockdown per se. At this stage in my life I am more adventurous than ever, and when retired one is not restricted by annual leave. So I would say to anyone, do go for whatever it takes to have a decent enough pension, as your lust for living rarely de teases with age.

maestroamado

S.M.B. wrote: »

Expanding on this hypothetical situation, I can either pay 40% tax now, or 40% tax later.

1) I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year. In 20 years I now have a pot of €24,764.78 which consists of a decent €10,364.78 in interest and €14,400.00 in deposits.

2) I put €100 into my pension for 20 years while getting a return of 5% excluding fees (no tax is due) each year. In 20 years I now have a pot of €41,274.63 which includes a lovely €17,274.63 in interest and €24,000.00 in deposits. On drawing down this money I am charged 40% on each payment. I end up with €24,764.78 in my bank account.

Apologies if I've completely misunderstood your point but to me the ''investment growth on the tax-free money" is only significant if the amount of tax you are liable to pay now far exceeds the amount you would be liable to pay in the future, which is highly likely but not guaranteed.

Or maybe there's something I'm failing to wrap my head around.

What i was saying to the OP earlier that wanted to use the money to live with now which is the choice.
If a person invests in modest pension it can be win-win.
If as you say a single person is on 40% tax they get this benefit paying in.
On retirement the same person will fall into some tax bracket.
If the credits are more than the state pension+private pension no tax is paid drawing down.
When i said this earlier the other posters were talking in Millions and it got lost.

Sheep Shagger

Looptheloop30 wrote: »

Spent 2 years in England. How does somebody go about reclaiming money paid into a pension fund there?

Surely it's possible....

First port of call should be the trustee/administrator.

The J Stands for Jay

TK Lemon wrote: »

Hi everyone,

My OH, Mr Lemon is 28 going on 29 . He has been in a defined contribution pension scheme in his current place of work since 2018 when he was 27.

If I'm not mistaken, tax refunds and tax credits are claimable for up to four years.

Is it possible to make a retrospective AVC contribution to his current provider for former employment in 2016 and 2017 and claim the tax relief immediately?

You can only backdate it one year.

Looptheloop30

Spent 2 years in England. How does somebody go about reclaiming money paid into a pension fund there?

Surely it's possible....

S.M.B.

AndrewJRenko wrote: »

I've bolded the bit where you go wrong. You don't pay 40% on every payment when you draw down, because of your tax free credits. If it is a smallish pension, you might well pay 0% on every payment. If it is modest, you may well pay the lower tax rate 20% on each payment. If it is a good pension, you'll still pay 0% and 20% on a good chunk. That's the bit that you're missing.

I'm not missing that bit. I said 'In a hypothetical situation where you were liable to pay the exact same rate of tax at the points of earning and retirement and there was no tax free lump sum then getting 'investment growth on the tax-free money' is irrelevant?' and you said "no".

S.M.B.

Augeo wrote: »

The roll up difference is as valid IMO.

Considering even your hypothetical situation isn't providing a better return when all if the points you ignore in that situation are factored in surely you can see no disadvantage in long-term investment being made via pension as opposed to investing with net wages.

What's the roll up difference?

The advantages / disadvantages are mostly dependent on the tax you are liable for now and the tax you will be liable to pay in the future which is all I was really trying to highlight using these hypothetical situations. Something like the abolishment of the tax free lump sum over 20 years would have major implications but fingers crossed that and the state pension will still be there.

Yellow_Fern

Calculations should also factor in some peoples non investments might be dividend free shares which would narrow the difference. Irish people are extremely mobile, if you happen to spend a few years in the likes of Singapore, Jersey or Dubai, your non pension investment might have a lot of tax reduced even if you return to Ireland.

[Deleted User]

S.M.B. wrote: »

Expanding on this hypothetical situation, I can either pay 40% tax now, or 40% tax later.

1) I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year. In 20 years I now have a pot of €24,764.78 which consists of a decent €10,364.78 in interest and €14,400.00 in deposits.

2) I put €100 into my pension for 20 years while getting a return of 5% excluding fees (no tax is due) each year. In 20 years I now have a pot of €41,274.63 which includes a lovely €17,274.63 in interest and €24,000.00 in deposits. On drawing down this money I am charged 40% on each payment. I end up with €24,764.78 in my bank account.

Apologies if I've completely misunderstood your point but to me the ''investment growth on the tax-free money" is only significant if the amount of tax you are liable to pay now far exceeds the amount you would be liable to pay in the future, which is highly likely but not guaranteed.

Or maybe there's something I'm failing to wrap my head around.

I've bolded the bit where you go wrong. You don't pay 40% on every payment when you draw down, because of your tax free credits. If it is a smallish pension, you might well pay 0% on every payment. If it is modest, you may well pay the lower tax rate 20% on each payment. If it is a good pension, you'll still pay 0% and 20% on a good chunk. That's the bit that you're missing.

[Deleted User]

The roll up difference is as valid IMO.

Considering even your hypothetical situation isn't providing a better return when all if the points you ignore in that situation are factored in surely you can see no disadvantage in long-term investment being made via pension as opposed to investing with net wages.

S.M.B.

Augeo wrote: »

.... Your logic also is based on pension being taxed at higher rate of tax. You are ignoring tax free lump sum, lower rate of tax on 200k to 500k lump sum & the 40% rate not being applicable to a large percentage of pension income for most pension pots.

It is, but I acknowledged this when I first said.

'In a hypothetical situation where you were liable to pay the exact same rate of tax at the points of earning and retirement and there was no tax free lump sum then getting 'investment growth on the tax-free money' is irrelevant?'

You have pointed out that trying to get returns that match what you would get inside the pension wrapper would be very difficult which is a valid point.

[Deleted User]

.... Your logic also is based on pension being taxed at higher rate of tax. You are ignoring tax free lump sum, lower rate of tax on 200k to 500k lump sum & the 40% rate not being applicable to a large percentage of pension income for most pension pots.

S.M.B.

Augeo wrote: »

You can't ' I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year'.... Exclude tax on an annual investment return.
Tax and fees will approximately halve the 5%.

Pension fund rolls up without tax deductions.... There will be far more of a pot at the end if each contribution is 66% larger and no tax is deducted annually from growth.

Your hypothetical calculation is error strewn.

Also tax free lump sum up to 200k from a pension is huge.

I know there will be far more of a pot with the increased contributions, my example shows there would be 66% more.

Fair enough about the difficulties in trying to find a matching return excluding taxes and fees, right now in Ireland there is no alternative tax free investment wrapper unlike the UK were there are ISA's, is there? I would have thought some of these auto enroll schemes that employees will be part of will have reasonably high fees and modest returns that may be matched or improved upon elsewhere, possibly not though.

Jim2007

maestroamado wrote: »

Why has property gone off this agenda, is it that it is too expensive?

Property is a very high risk asset class, it always has been. A portfolio with more that 7% in property is considered a high risk investment.

You break every single rule of investing when you buy a property:
- Borrow to invest
- Fail to diversify among asset classes
- Fail to diversify fail to diversify within the asset class
- And go all in in a hight risk asset class.

It should be no surprise that people got badly burned in the last recession, but it seems many did not learn the lesson, as they blamed everyone but themselves.

One of the best bits of marketing every was the developers - get on the property ladder and rent is dead money.

What many Irish people fail to realise is that is that while equities took a hit in the last recession as well, they recovered long before the Irish property market. And it is nothing new, it always happens.

[Deleted User]

You can't ' I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year'.... Exclude tax on an annual investment return.
Tax and fees will approximately halve the 5%.

Pension fund rolls up without tax deductions.... There will be far more of a pot at the end if each contribution is 66% larger and no tax is deducted annually from growth.

Your hypothetical calculation is error strewn.

Also tax free lump sum up to 200k from a pension is huge.

donkey balls

S.M.B. wrote: »

Expanding on this hypothetical situation, I can either pay 40% tax now, or 40% tax later.

1) I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year. In 20 years I now have a pot of €24,764.78 which consists of a decent €10,364.78 in interest and €14,400.00 in deposits.

2) I put €100 into my pension for 20 years while getting a return of 5% excluding fees (no tax is due) each year. In 20 years I now have a pot of €41,274.63 which includes a lovely €17,274.63 in interest and €24,000.00 in deposits. On drawing down this money I am charged 40% on each payment. I end up with €24,764.78 in my bank account.

Apologies if I've completely misunderstood your point but to me the ''investment growth on the tax-free money" is only significant if the amount of tax you are liable to pay now far exceeds the amount you would be liable to pay in the future, which is highly likely but not guaranteed.

Or maybe there's something I'm failing to wrap my head around.

My friends father pays 1% USC on his private pension,

S.M.B.

AndrewJRenko wrote: »

No. If you were trying to invest after tax, for every €100 you could be putting into a pension, you'd be putting €60 into an after-tax fund.

So the compound growth available to you over the years is much, much higher in your pension fund.

Expanding on this hypothetical situation, I can either pay 40% tax now, or 40% tax later.

1) I invest €60 for 20 years while getting a return of 5% excluding fees/tax each year. In 20 years I now have a pot of €24,764.78 which consists of a decent €10,364.78 in interest and €14,400.00 in deposits.

2) I put €100 into my pension for 20 years while getting a return of 5% excluding fees (no tax is due) each year. In 20 years I now have a pot of €41,274.63 which includes a lovely €17,274.63 in interest and €24,000.00 in deposits. On drawing down this money I am charged 40% on each payment. I end up with €24,764.78 in my bank account.

Apologies if I've completely misunderstood your point but to me the ''investment growth on the tax-free money" is only significant if the amount of tax you are liable to pay now far exceeds the amount you would be liable to pay in the future, which is highly likely but not guaranteed.

Or maybe there's something I'm failing to wrap my head around.