A pension – are you wondering if you should get one? The answer to this is yes and here is why.
You should get a pension to ensure you have enough money for your later years – the answer is as simple as that. Your retirement could last quite a long time, 20 years wouldn’t be exceptional so you need to ensure you have enough money to enjoy these years.
This is time that you have worked hard for. Time you owe yourself. Time to spend doing all those things you have always promised yourself.
Without the stresses of having to earn a living, some of that time will probably be spent travelling. Visiting friends in other parts of the world – or visiting places that you’ve always wanted to see. Some, perhaps, will be spent on hobbies and quality time with your partner, family and friends.
But there’s no such thing as a free holiday. Everything has to be paid for. So, will you have enough money to enjoy your retirement to the full?
What is a pension?
It’s the money (usually income) that you will live on when you stop working. In effect, it will replace the salary or wages that you earned before retirement
Why do I need a pension?
When you stop working, your pay will come to an end but, unfortunately, the bills won’t! So, you will need a substantial regular income. And where will it come from? Unless you win the lottery or inherit a large sum of money, your pension will almost certainly be your main source of income after you have retired
What about the state pension?
Hopefully it will be there when you retire. But it is rather like a lifeboat – fine in an emergency, but not suitable for a long-term cruise. The State pension is currently only €230 a week which is less than €12,000 per year. Could you realistically expect to get by on that level of income? In a recent Pensions Board survey, 87% of workers said that the State pension would fall well short of their needs. So, you will almost certainly need a higher pension – and it will be up to you to make up the shortfall through your own pension plan
How much do I need to put in?
You usually pay an amount monthly from your income and can also pay once off lump sums into your fund. The amount you pay in is totally up to you but the more you can invest now the bigger difference it will make at retirement time.
Get money from the government
Because the government wants to encourage everyone to set aside money for their retirement, it gives three valuable tax breaks to pension savers – whether they have their own pension plans or are in a company pension plan.
The first is tax relief on what you pay in. The second is freedom from tax on any investment returns achieved by the plan. And the third is the ability to take part of your plan’s value as a tax-free cash sum when you retire.
When you pay money into a pension plan, the taxman will give you back part of your contributions – either 20% or 40%, according to your marginal rate of tax
When you retire, you will have the option to take part of the money in your plan as a cash sum – without having to pay a cent in tax on it.
When should I start a pension ?
It’s never too early or too late. The younger you are starting a pension the longer time you have to invest in it. However, even if you have left it to later in your life you can always start one today.
Can I vary my contributions?
Most pension plans will allow you to increase or reduce your contributions at any time – and to take a ‘payment holiday’, stopping your contributions altogether, if you need to, and starting them up again when you can afford to do so. Of course, reducing your contributions – or missing some altogether – will reduce the eventual value of your plan and mean that your pension may not be as high as you wanted. So you should try to maintain your contributions, if at all possible. But, if you need the flexibility to cut back, it will normally be there.
How will I monitor its performance?
You will receive regular reports from your pension company on the progress of your plan and the performance of your chosen investment funds. Some pension companies will even let you monitor your plan on-line. If you ever have any queries about your plan – and how it is progressing – you should ask your Financial Broker to explain the position to you.
Your retirement could last over 20 years, will you have enough money to live and enjoy your life. Talk to Ark Finance, we are an independent Financial Broker who can give you professional advice about pensions. Contact us today to find out how much you need to put into a pension to ensure you enjoy the longest holiday of your life.
Check out this calculator tool from Aviva that will show you the importance of investing in a pension for your future self. Statistical information given here is supplied by Aviva.
