# Bad time to start pension?



## kittyjo (28 Oct 2008)

Hi,
I've decided at long last to start a pension (I'm 38). I was considering starting a consensus fund with Irish life - medium risk which was suggested by my broker. But with all the talk of stock markets etc collapsing I'm wondering is this a wise idea.  I am completely illiterate when it comes to pensions and I'm only starting one because everyone says you should have one. Can anyone please advise me what I should do?


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## colm5 (29 Oct 2008)

Hi,

Some would say this is a great time to start a pension as the unit values have come back so much. You are buying units that were as this value a few years ago or more! You have to think long term, 10 years from now this will be a blimp on a stock market history chart. I hope

Personally, I have increased my pension contributions.
Regards
Colm


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## NorthDrum (29 Oct 2008)

colm5 said:


> Hi,
> 
> Some would say this is a great time to start a pension as the unit values have come back so much. You are buying units that were as this value a few years ago or more! You have to think long term, 10 years from now this will be a blimp on a stock market history chart. I hope
> 
> ...



Agreed 100%

Think of your question another way. When is the right time to start a pension*?*

The astute and usually more successful investors buy when the stock price is going down and sell when the price is going up.

Right now you are buying units of stock at a very cheap price. Chances are they could fall more in the coming months, but you are already getting them at a knock down price.

Historically anybody who gets in just before the upturn in markets, makes a fair old profit in the long term.

That aside you should start contributing to your pension as early as possible. If nothing else for the government tax relief on offer.

If you look at it this way, even if you are on the lower taxband and lose 20% on your pension value in year one, you still havent lost any money other then the tax relief your benefited from (thats just looking at it from a pessimistic perspective) that would of gone into government coffers anyway.


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## DerKaiser (29 Oct 2008)

Cheap units is a load of codology. What's happened in the past is nothing to do with what will happen in the future.

Also the performance of your pension is more a function of what happens to the markets in 20 years time than anything to do with the current environment.

Say you have 25 years to go. The return in each of those 25 years (2009 to 2033) is equally important to the return from your first year's premium. The second years premium will be dependant on the returns from 2010 to 2033 and so on. By 2033 you'll have paid 25 premiums and a 1% return that year will have a similar financial impact on your retirement proceeds as a 25% return on your first year's premium next year!

Bottom line is that a pension is a very important long term decision and trying to time when to start or stop paying premiums is very secondary decision


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## Jan Molby (29 Oct 2008)

blank post


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## Jan Molby (29 Oct 2008)

NorthDrum said:


> Agreed 100%
> 
> Think of your question another way. When is the right time to start a pension*?*
> 
> ...


 
First time poster and also wondering about a pension.

Surely property and shares are the way to go long term rather than a pension where you pay administration fees for the first few months anyway!


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## NorthDrum (29 Oct 2008)

DerKaiser said:


> Cheap units is a load of codology. What's happened in the past is nothing to do with what will happen in the future.
> 
> Also the performance of your pension is more a function of what happens to the markets in 20 years time than anything to do with the current environment.
> 
> ...



It is true that the real benefits of long term growth (whether pensions or investments) come when the fund is at its highest but that doesnt mean that there isnt money to be made on starting a pension now.

And yes, you are buying stock today alot cheaper then you would of this time last year so in terms of buying into the market you are getting value for money. 

Theoretically the OP could buy higher risk equities now and sell in a year or two and make a profit by buying cash or gilts. Odds on them doing that are slim, but that prooves the point that buying Units at a good value can make a differance.

The most important thing from this post is that in terms of tax efficient savings goes, the sooner you start a Pension the better.


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## NorthDrum (29 Oct 2008)

Jan Molby said:


> First time poster and also wondering about a pension.
> 
> Surely property and shares are the way to go long term rather than a pension where you pay administration fees for the first few months anyway!


I assume you mean buying property or shares yourself. 

Well you should look at the tax relief you can get on your pension (subject to revenue limits you can get your higher rate tax relief on your contributions) and weigh it up against the costs involved of buying shares or property*.
*
For example*:

*I contribute €100 per month into my PRSA. I am on the lower tax band so I get tax relief of 20%. Trying to simplify this, its like the SSIA in that really you are only out of pocket €80 (after your tax relief) but you are being allowed to invest €100 tax free and with your investment growing free of tax. 

Management fees on P.R.S.A's are usually 5% on initial contributions and 1% of the fund each year.



I know that some people are trying to encourage the change of how Pension contributions are administered particularly in the way the tax relief is offered.

Assumption below that you are on higher tax band and entitled to higher band tax relief on €100:

1) If I said to you that for every €59 you put into your pension the Government will put in €41, that sounds like a no brainer 

But 

2) Most people here us say that you will get tax relief on the €100 you put in according to your tax band

Which of these statements sounds more appealing, 1 or 2?

In essence they are both offering the same benefits (with regards to how much money you should have in your pocket after the transaction) but the way they are marketed does take some gloss of the tax relief advantages .


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## colm5 (29 Oct 2008)

DerKaiser said:


> Cheap units is a load of codology. What's happened in the past is nothing to do with what will happen in the future.
> 
> Also the performance of your pension is more a function of what happens to the markets in 20 years time than anything to do with the current environment.
> 
> ...


 
Hi, My point was that one should not be afraid to invest in a falling market like this one for the long term, and do not try and pedict the bottom. And also, I would be happier to start my pension this year than last year as i can avail of last years tax benefits and this years, in this year ( i think you can still do that). 

Agreed that its more of what happens later, but since we don't know what is going to happen, I would prefer to buy more units cheaper now before the market grows again (assuming it does of course), taking advanatage of the great tax deal outlined by others

Regards
Colm..


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## DerKaiser (29 Oct 2008)

colm5 said:


> Hi, My point was that one should not be afraid to invest in a falling market like this one for the long term, and do not try and pedict the bottom. And also, I would be happier to start my pension this year than last year as i can avail of last years tax benefits and this years, in this year ( i think you can still do that).
> 
> Agreed that its more of what happens later, but since we don't know what is going to happen, I would prefer to buy more units cheaper now before the market grows again (assuming it does of course), taking advanatage of the great tax deal outlined by others
> 
> ...


 
I agree that the sooner you start your pension the better as you get the benefit to tax relief now and shouldn't leave it all to the last minute to provide for retirement.

I also agree with your sentiment that no one should be afraid to invest just because things have fallen.

What I disagree with is saying that now is a good time to start _because _the market has fallen.

If you have studied potential earnings of the various sectors you want to invest in and are happy that share prices are undervalued versus expected future earnings then by all means invest. 

But looking at the simple fact that share prices have fallen does not mean shares are good value.

Say a drugs company finds a cure for cancer from which it expects to earn €2m per year. €30m might be a reasonable valuation for this company. Say the following year another company gets a license to manufacture a similar drug, the original company might now expect to earn €1m per year. 

If its value halves to €15m is it better value? No. The new price has simply factored in the new information we have i.e. its profit are expected to half.


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## Beamie (29 Oct 2008)

kittyjo said:


> Hi,
> I've decided at long last to start a pension (I'm 38). I was considering starting a consensus fund with Irish life - medium risk which was suggested by my broker. But with all the talk of stock markets etc collapsing I'm wondering is this a wise idea. I am completely illiterate when it comes to pensions and I'm only starting one because everyone says you should have one. Can anyone please advise me what I should do?


 
Hi kittyjo,

I think the main thing is not to be put off starting a pension.  It takes a long time to save enough money to fund a pension, so the sooner you start the better, as long as you can afford to save into this very long term saving (i.e. pension).  Some tax advantages have been described above.

Irish Life have a wide range of funds, so you can choose one level of risk now and you can change it later if you want - for both new contributions and for what you have already saved.  Just be aware that some funds have restrictions on moving from the fund to another fund.  This doesn't apply to the consensus fund (at least in what I have read).

Good luck.


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## therock (30 Oct 2008)

kittyjo said:


> Hi,
> I've decided at long last to start a pension (I'm 38). I was considering starting a consensus fund with Irish life - medium risk which was suggested by my broker. But with all the talk of stock markets etc collapsing I'm wondering is this a wise idea.  I am completely illiterate when it comes to pensions and I'm only starting one because everyone says you should have one. Can anyone please advise me what I should do?



hi kittyjo,

stay away from high risk and medium to high risk...

medium risk sounds ok, but talk to your broker and find out more information...medium risk can cover a number or areas...

for example up to this year, bank shares were considered safe as houses and therefore low to medium risk...now they would be considered high risk...

definately start your pension, but make sure you are not exposed to the stock market in the current climate...get into a medium or low risk fund for the time being and then longer term when the stock market settles down, move it to a higher risk, and then out again if it goes down again...

What has been the performance of the Irish Life consensus fund in the last few years?


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## DerKaiser (30 Oct 2008)

therock said:


> hi kittyjo,
> 
> stay away from high risk and medium to high risk...
> 
> ...


 
Yeah I'd agree here, I'm looking at a 30% drop for 2008 in one of the better provider's low to medium risk funds.  What one person considers to be a medium risk is not the same as what someone else might think


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## kittyjo (5 Nov 2008)

Thanks for all your advice folks. I'm making the leap. Of course now, having read a few other related posts, I'm wondering is 4% on each contribution and 0.75% annual fund management a reasonable enough charge or should I look elsewhere?


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## D8Lady (5 Nov 2008)

Have a look at . 0% commision,1% annual charge. They have 4 PRSAs to choose from, may not be what you are looking for.


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## DerKaiser (6 Nov 2008)

kittyjo said:


> Thanks for all your advice folks. I'm making the leap. Of course now, having read a few other related posts, I'm wondering is 4% on each contribution and 0.75% annual fund management a reasonable enough charge or should I look elsewhere?


A 1% management charge, 0% contribution charge would be better for any regular premium pension with a term of less than 35 years


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## johnnygman (6 Nov 2008)

DerKaiser said:


> A 1% management charge, 0% contribution charge would be better for any regular premium pension with a term of less than 35 years


 
These are very competitive charges excellent value here..


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## Dinarius (11 Nov 2008)

A very, very interesting thread.

I have just been talking to my accountant.

I have a total tax liability of €29k+ and she has calculated that if I contribute the maximum pension contribution of around €12k, my total outlay will be €30k+. i.e. the taxman will get only €18+ and my pension fund will get €12+ - in short, a total no-brainer from my point of view.

Since I have years in hand and my wife will also have a pension, I can afford to be aggressive in my choice of pension investment.

So, what/who should I consider?

Many thanks.

D.

ps. Totally agree that this is an excellent time to invest. It's really only a bad time if you're in the unfortunate position of trying to buy an annuity.


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## colm5 (12 Nov 2008)

kittyjo said:


> Thanks for all your advice folks. I'm making the leap. Of course now, having read a few other related posts, I'm wondering is 4% on each contribution and 0.75% annual fund management a reasonable enough charge or should I look elsewhere?


 
That is way too high IMO. Stay well away from them!
I think Quinn do a 1% total PRSA or pension.


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## Sams (13 Nov 2008)

Eagle Star also have a dual save matrix fund, which has no contribution fee and 1% annual management fee. It allows you to choose investment options, so if you prefer low risk you could put it into a cash fund with guaranteed return (ECB rate + x%) for the moment until the markets are less volatile. I used this for a one off payment recently, don't know if it's available for regular monthly payments, but worth checking if you're researching options.


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## Hibernicatio (13 Nov 2008)

The deadline to start a pension fund is Monday 17th November, to claim relief against 2007 income, right? 

Is Monday too late or does it have to be done tomorrow?

Thanks


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## LDFerguson (13 Nov 2008)

Hibernicatio said:


> The deadline to start a pension fund is Monday 17th November, to claim relief against 2007 income, right?


 
Assuming you're filing and paying tax using www.ros.ie, that's correct.  



Hibernicatio said:


> Is Monday too late or does it have to be done tomorrow?


 
Application and cheque must be received by the pension company no later than Monday AND you have to elect to backdate your tax relief into 2007 by Monday.


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## Hibernicatio (13 Nov 2008)

Many Thanks LD,

Will get onto it.

H


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## Hibernicatio (13 Nov 2008)

Any advice on the type of pension I should go for:

Age 30,  self employed, first pension contribution. Would like to be able to direct fund myself as much as possible and also have flexibility to change both type and provider if possible.

Lowest management and contribution as possible.


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## ccbkd (14 Nov 2008)

colm5 said:


> Hi,
> 
> Some would say this is a great time to start a pension as the unit values have come back so much. You are buying units that were as this value a few years ago or more! You have to think long term, *10 years from now this will be a blimp on a stock market history chart*. I hope
> 
> ...


 
Hardly a blimp - its been the most epochal time since 1929 - and that certainly wasn't regarded as a "blimp"


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## shammy feen (14 Nov 2008)

ccbkd said:


> Hardly a blimp - its been the most epochal time since 1929 - and that certainly wasn't regarded as a "blimp"


 
Its more a great big Zeppelin than a Blimp.


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## DerKaiser (14 Nov 2008)

Hibernicatio said:


> Any advice on the type of pension I should go for:
> 
> Age 30, self employed, first pension contribution. Would like to be able to direct fund myself as much as possible and also have flexibility to change both type and provider if possible.
> 
> Lowest management and contribution as possible.


 
yep, take out one to reduce your tax bill and ask for it to be put into a cash fund.  you can switch to stocks/shares at a later point if you feel comfortable enough that you know what you're doing


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## colm5 (14 Nov 2008)

Ok, a really big blimp.. I think 2001 was also the most epochal time since 1929.

In time, it will pass. Just as markets will not continually increase, they will not continually decrease.



ccbkd said:


> Hardly a blimp - its been the most epochal time since 1929 - and that certainly wasn't regarded as a "blimp"


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