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Starting your pension 

 Why should you start a pension and what’s the best way to begin?

A pension is a long-term way to save for retirement and to supplement the State Pension, which on its own may not be enough to maintain your standard of living. Contributing to a pension allows your savings to grow over time, helped by tax relief and compound interest (where returns build on previous returns). The type of pension you can use depends on how you work, with options including personal pensions, occupational pensions and the new auto-enrolment scheme. 

Deciding how much to save involves thinking about your future lifestyle, expected expenses, housing costs and any dependants. Pensions are long-term investments and their value can go up or down, so factors such as risk, time frame, inflation and fees are important. Review your pension regularly. Use the Pensions Authority calculator to work out how much to invest, and make sure to get financial advice to help you choose the right option for your needs and to make sure you stay on track. 

What is a pension and why is it important?

A pension is a way to set aside money during your working life for use in retirement. Most people qualify for a state pension based on their PRSI contributions – you can check if you qualify on the Gov.ie state pension page. However, saving extra through a personal, occupational or Auto-enrolment pension can help ensure a better standard of living.

What types of pensions are available in Ireland?

There are four main types of pensions available in Ireland. Your eligibility will depend on your employment status and whether you have an occupational pension. 

The following employee types can open a personal pension:

  • Self-employed
  • Working in a company*

The following employee types can open a Public Service pension:

  • Civil servants
  • Public servants

The following employee types can open an occupational pension:

  • PAYE employees of a company

The following employee types will be opted in to the Auto-enrolment scheme:

  • PAYE employees of a company
*If your company does not provide an occupational pension scheme, they have to offer you the facility to pay into a PRSA through your salary.
 
**If you or your employer is already making pension contributions through your payroll, you will not be eligible for Auto-enrolment.

How much pension income should you aim for?

A common goal is 50 to 60% of your pre-retirement income, including the State Pension. Use the Pension Authority calculator to estimate your target.

How can you estimate your retirement expenses?

How do you imagine your life after retirement? Would you like to go on getaways or prefer a quieter lifestyle? How much money will you need for hobbies or other activities? 

Don’t forget to factor in healthcare and potential long-term care costs. Read the CCPC budgeting resources to help estimate your expenses.

While figuring out your retirement expenses may not be easy, the points below can help you get a rough idea of how much income you will need in retirement based on the lifestyle you want and what it will cost. In particular, consider the following:

The cost of your home

If you own your home, your mortgage is usually one of your biggest expenses. Your expenses may significantly drop if you can pay the mortgage off before you retire. Otherwise, paying it off using your tax-free lump sum from your pension could be an option.
If you rent your home, you will still have to pay rent when you retire. Consider that if you rent in private accommodation, you will have little or no control over this expense, as the rent can increase at any point.

 

Top tip
If you are worried about paying your rent in retirement, find out what supports may be available to you. Visit Citizens Information or contact your local Money Advice and Budgeting Service (MABS) centre. 

Changes to your expenses 

Some expenses may be lower or stop when you stop working, for example, travelling expenses, lunches, etc. Other costs, such as healthcare expenses, may increase, especially if you don’t have health insurance coverage.

Your gas and electricity bills may increase if you spend more time at home. When it comes to managing utility-related expenses, support may be available to you. For more information, go to Citizens Information or contact your local MABS centre.

Will you have any dependants? 

If you are supporting your partner or expect to continue supporting an adult dependant in retirement, you will need to consider their living costs. This is important because, in some cases, you may qualify for a higher State Pension payment through an Increase for a Qualified Adult, depending on your dependant’s income and circumstances. For more, visit Citizens Information. 

Do you expect to have outstanding loans?

Try to repay any outstanding loans before you retire. If you are worried about debt repayments in retirement, you should contact your local MABS centre for information.

When should you start contributing to a pension?

There are two golden rules when it comes to starting your pension:

  • The sooner you start, the more you benefit from compound interest, which means your savings grow faster over time.
  • Don’t worry if you have not started yet – it’s never too late.
Compound interest means you earn interest not just on your original amount (the principal) but also on the interest that has already been added. Over time, this makes your money grow faster.
Example: If you put €100 in a savings account at 5% interest per year, after the first year you have €105. In the second year, you earn interest on €105 (not just €100), so you get €110.25. Each year, the interest is calculated on a bigger amount – that’s the power of compounding.

Consistent savings

Building enough money for retirement

  • Make regular pension contributions throughout your working life.
  • Start early – your savings have more time to grow and benefit from compound interest, which can mean a higher retirement income.

Starting later?

  • It’s never too late to start a pension.
  • Saving later can give you a clearer idea of your expenses like mortgage payments or family commitments.
  • But the later you start, the less time your fund has to grow.
  • You may need to contribute a higher percentage of your salary or adjust your budget to reach your target pension income. 
Top tip
You could commit to contributing any increases in your salary to your pension before you get used to the money.

What tax relief is available on pension contributions?

Making contributions to your pension allows you not only to build up a fund for retirement but it also allows you to save money now through tax relief. Find out more about pension tax relief on the Revenue website. 

Eoin McGee explains tax benefits and pensions

How do you choose the best pension plan?

Pensions can be complex, so it’s a good idea to get financial advice before choosing a pension product. An adviser can help you find the right option for your needs, goals and circumstances. Always check that your financial adviser is regulated by the Central Bank of Ireland.

Pensions are long-term investments. In most cases, you can’t access your pension funds until you’re at least 50 or 55 (depending on the scheme rules), and you may not need the money until much later. Because of this, investing for retirement is different from saving for short-term goals like a holiday.

When choosing how to invest your pension, keep these key points in mind:

  • Level of risk: How much risk are you comfortable with? Higher-risk investments can offer higher returns, but there’s also a greater chance of losses. Examples of pension investments include cash deposits, bonds, company shares and property. A financial adviser can help you match your investments to your risk appetite.
  • Time frame: The longer your money is invested, the more time it has to grow and recover from any market downturns. Early in your career, your pension may be invested in higher-risk funds (like shares or property). As you approach retirement, your money is usually moved to lower-risk options, such as cash deposits. 
  • Inflation: Your pension savings need to grow faster than inflation, or your money will lose value over time. Some investment products are better at keeping up with inflation than others.
  • Diversification: Don’t put all your eggs in one basket. Spreading your money across different types of investments can help reduce risk.
  • Fees and charges: Pension costs can have a significant impact on your returns. Make sure you understand all the costs involved. Learn more about pension fees and charges.

Finally, remember to review your pension regularly and particularly in the 10 years coming up to retirement. Your circumstances and the range of available products will change over time, so it’s important to check that your pension is still on track to meet your needs.

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