Making Cents: Pension tension - timing is crucial to get full benefits

I have been spending the first month of the new year talking to experts for advice about how to tackle major financial resolutions.

For this, the final column in January, I spoke to financial adviser Carol Brick of HerMoney.ie about an important financial item that has also become an election issue in recent days — pensions.

If recent events have shown us anything it is that state supports in our old age subject to change, all the more reason to do some planning of one’s own.

I asked Ms Brick where people should start, if they have never really considered their pension before now.

“For employees, the first place to start is with your own employer,” she says.

“Lots of employers will provide a contribution to an employment related pension scheme as part of your employment contract.

"You will usually need to match it with a contribution of equal or greater size. Full tax relief is available to you on your contributions at your marginal rate.”

However, there is currently no legal obligation on an employer to set up or contribute to a pension scheme.

“If your employer doesn’t have a staff pension scheme in place, they will need to provide you with access to at least one standard personal retirement savings account (PRSA),” Ms Brick says.

“You will be able to make employee contributions to this scheme and your tax relief will be processed at source through your payroll.”

If someone has a work pension, is it enough to go with whatever default payments their employer sets up?

“Additional voluntary contributions or “AVCs” are extra top up payments which you can make towards your pension,” Ms Brick says.

“This is a great way for you to increase your overall retirement benefits and claim generous tax relief along the way.”

She suggests you do some maths to help decide if you need to use AVCs.

“We would usually advise that you need to be saving 15-20% of your income to retire on half your salary at 65,” she explains.

“Many employees are not reaching these levels of funding.

Whilst sticking with the default payments might seem like an attractive “low cost” option for younger PAYE workers, we would strongly advise them to try their very best to top up their contributions with an additional voluntary contribution either every month or in the form of a single contribution at the end of the year.

The situation is slightly different for the self-employed.

“For those who are self-employed either as a sole trader or a company director, a pension contribution can be treated as a legitimate revenue approved business expense and can reduce your overall business tax bill,” Ms Brick says.

“As soon as a business can afford it, a pension should be seriously considered by the business owner especially when there are still such generous tax reliefs available.

“Sole Traders would typically invest contributions in a personal pension or PRSA and Company Directors in an executive pension plan.”

If you are a company director or a “key” person within a company, you can take advantage of even greater pension funding through your company than would be every possible if you were a sole trader.

“For those who need to take responsibility for their own pension plans, we would strongly advise them to seek financial advice from an independent professional broker who has access to the products of all relevant product providers.”

Finally, Ms Brick has a particular word of warning for those moving closer to retirement.

“During the final 15 years of the pension funding cycle, it is imperative to make the most of the funding time you have left and try your best to try and put aside as much as you possibly can towards your end retirement goal as it now pushes closer than ever,” she says.

“In the last 10 years, you should also be looking at how you expect you’ll take your benefits in retirement and what tax etc will be payable on same.

“You need to ensure that the payments you are making are matched to your intended retirement goal so there are no nasty surprises at the end of your funding journey.”

Deal of the Week

With this year’s Six Nations championship getting underway this weekend, Irish Rail is encouraging fans to travel by train.

Ireland have three home games this year, beginning when they face Scotland on Saturday at 4.45pm.

They will also welcome Wales and Italy to Dublin over the tournament.

Irish Rail is deferring or extending a number of services to suit fans travelling to the matches and is reminding fans that they can also take advantage of web fares to get the best price.

Fans can travel from Ennis and Limerick from €14.99 each way, from Cork from €21.49 each way and from Tralee from €24.99 each way.

Students can also avail of discounted student fares when booking online.

Extra DART capacity will be added before and after each game for supporters going to the games.

Get full details and book at irishrail.ie