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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Suze456 on April 30, 2016, 02:20:51 AM

Title: Pension versus investing in Ireland
Post by: Suze456 on April 30, 2016, 02:20:51 AM
So if I put money into a pension, I get the benefit of tax relief on contributions (very small at present as barely paying tax). No employer contribution. Can't touch until age 60 ish.

If I invest and build up a lump sum, whenever it is big enough, I can start drawing off  4% per annum to live on, no age requirements. And if invested right, that can continue until I die, so no need for a pension?

Something I'm missing here? Just wondering if I should just be investing rather that putting most into a pension. Or half and half...

In Ireland so probably need to check out tax implications here. But general opinions appreciated.

Title: Re: Pension versus investing
Post by: shelivesthedream on April 30, 2016, 03:11:38 AM
Basically, yes. However, the tax implications and fees for various platforms might tell a slightly different story in which it's worth both investing in the stock market and contributing to a pension. Do you have ISAs in Ireland?

I put most of my savings into index funds in a stocks and shares ISA, because it grows tax free and I can access it at any time. But my platform charges fees which, although small, eat into the tax-free gains. However, I also pay a small amount monthly into a pension as a kind of insurance against it all going pear shaped, and because I don't think I will want to be managing investments at 90 so would like a simple guaranteed income from my pension, even if it's small. Like you, the tax relief is not game-changingly large but it helps.
Title: Re: Pension versus investing
Post by: Suze456 on April 30, 2016, 04:55:33 AM
Tax free we have Government Saving Bonds that pay max 2.26% AER. Apart from that, afaik it's about 41% DIRT tax + 4% PRSI on interest and 33% CGT + 1.5-7% USC on investments

So another option may be a smaller lump sum for FI then pension to kick in at retirement age.

Title: Re: Pension versus investing
Post by: clarkfan1979 on April 30, 2016, 10:36:51 AM
I am not a big fan of pensions because I would rather be in control. However, I am also an optimist and typically make the best of my situation. I am currently required to pay 8% of salary into pension. My current pension is going to be a percentage of my highest income (highest 1 year or average of highest 3 years, depending on how things go). As a result, when I am around 60 I will most likely apply for higher paying jobs within the organization to capitalize on my pension payout.

Title: Re: Pension versus investing
Post by: Gary123 on May 01, 2016, 08:25:31 AM
Depends on what part of Ireland you are in (Pound Sterling or Euro) and whether your pension adjusts for inflation.

My preference would be to stay away from a pension that operates like an annuity (fixed payments for life) if you live in the independent Republic of Ireland.  The Euro has devalued against the dollar and the Spanish, Greek and other member countries economic instability may really reduce your future buying power due to their inability to live on a budget.

Now, if you are in Northern Ireland and rely on Pound Sterling maybe a fixed annuity is a safer bet longterm.  My preference (without knowing your particulars) is straight investing but to the extent your employer matches money placed in the pension than you should at least max out their match using pre-tax Euros or Pounds.
Title: Re: Pension versus investing
Post by: shelivesthedream on May 01, 2016, 09:11:52 AM
If you're able to, it might be a good idea to change the thread title to "Pension versus investing in Ireland" - you might get more relevant people checking it out.
Title: Re: Pension versus investing
Post by: MrsPete on May 01, 2016, 01:00:15 PM
I have a pension, and it's a complicated topic.  Pros and cons:

- I'm closing in on finishing my years, and I feel good about the security of my pension; however, if I didn't feel that way, I don't know what I could do about it.  I'm "in the system", but I don't have a whole lot of choices.  I would prefer to feel more control over things.   

- I personally come from a family with long-living genes, so I'm likely to milk the state for all this pension's worth (my grandmother certainly did, and my mother's doing it right now); I expect to begin collecting my pension in my early 50s and will probably live to see 100.  However, that's not a sure thing.  If I begin collecting, then die two years later, I will lose big time -- and I can't even leave my remaining funds to my children.  On the other hand, if I had been saving my money privately all these years and I died young, at least I'd have the solace of knowing that my kids have it.
- One of the things that people never seem to take into consideration is that a pension ties you to one employer (in my case, the state, which is pretty common).  If you're a two-career household, this could matter not only to you but to your spouse.  I've worked over the years with a fair number of co-workers who've moved in from another state, throwing away 5, 10, 15 years in the process.  It's sad but true that those people will never max out their pension benefits (unless they work 'til age 70 or so), and most of them haven't seemed to grasp that reality until they'd already made the decision.

- Another thing to consider is that employers are trying hard to phase out pensions -- we understand they'll cease to exist for new hires in another 1-2 years.  A person my age can be pretty secure about this, but a young person who works a while ... then leaves, perhaps to have children or perhaps because of an illness ... would come back in under the new rules, which would mean no pension.  You should investigate whether this would happen to you or not; after all, you can't promise you won't need to leave over the course of two decades or so. 

- The state is pushing people in my shoes (almost at full pension) to retire early.  Why?  Retiring even a year or two early (assuming you're not in your 60s or 70s, and I'm not even 50 yet) means accepting big reductions -- for life.  From their point of view, it makes sense. 

- All my older friends who've retired and are collecting the pension that'll one day be mine are HAPPY with their situation.  They're not collecting massive paychecks, but most of them were smart enough to pay off a modest house and save independently of the pension.  Without exception, they're living comfortably and can expect to do so for the rest of their lives. 

- Though I said earlier, I feel secure about my pension, I have also saved significantly -- and have done so since my very first professional paycheck out of college.  I would be nervous if I didn't have these reserves in addition to my pension.  My husband and I've gone over our numbers obsessively, and we think that my pension will be our "everyday money" -- and it'll be just about right for our everyday expenses.  That is, with a paid-for house, my pension should just pay groceries, utilities, taxes, etc.  And then we'll have our savings for vacations, etc. 

- If I were suddenly back at the beginning of my career and could choose to self-invest or go with the pension, what would I choose?  For me personally, given my genes, I think the pension is the better option.  However, since I can't know for certain how long I'll live /how many years I'll collect, I'm making a guess. 

I'll close with this last bit of advice:  You absolutely must not trust what I say.  Oh, it's all true -- for me -- but it may or may not be the same as your specific pension rules, especially since we're in different countries.