# Pension for an 18 year old



## Sparkski (1 Jan 2010)

My son will be 18 in a few months.    I'd like to get him started on a pension even if I'm making the payments for the first few years.   Not looking to go mad, maybe €30 or so a month.   I know I won't get the tax relief.  I figure that if it's already started he'll keep paying in once he starts working full time.    Any suggestions on a good place to start or at least what not to do?


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## Complainer (1 Jan 2010)

Are you really sure you want to put savings into a fund that he won't be able to touch, regardless of his future needs (e.g. house/family etc)?


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## Brendan Burgess (1 Jan 2010)

Why not just start an ordinary savings scheme somewhere? He will be able to access the money when he wants to buy a house, when he wants to start a business, when he wants to travel abroad to study. 

A pension is completely inappropriate for an 18 year old.


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## Bob_tg (1 Jan 2010)

Sparkski said:


> Any suggestions on a good place to start or at least what not to do?



Do not do it... it's pretty much a waste of money for somebody so young... even moreso when there is no employer's contribution.


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## eirefinq (2 Jan 2010)

i disagree that 18 is too young for a person to start a pension. It is never to early to start contributing to a pension. If you start earlier you will have a much longer period of time to contribute so the contribution level can be lower. Plus you get the growth of the fund also. Is your son working at the moment? If he is, his employer should have a prsa scheme and that should be used as he will get tax relief on the contributions, if not, consider a unit linked savings plan (better for medium term savings).


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## Bob_tg (2 Jan 2010)

eirefinq said:


> i disagree that 18 is too young for a person to start a pension. It is never to early to start contributing to a pension. If you start earlier you will have a much longer period of time to contribute so the contribution level can be lower. Plus you get the growth of the fund also. Is your son working at the moment? If he is, his employer should have a prsa scheme and that should be used as he will get tax relief on the contributions, if not, consider a unit linked savings plan (better for medium term savings).



This is ridiculous advice.


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## Brendan Burgess (2 Jan 2010)

This has been debated elsewhere. 

"It's never too young to start a pension" is the pension salesman's mantra which the general public has swallowed. 

Press the reset button: 

"It's never too young to start saving. Just don't do it through a pension scheme"

Only contribute to a pension when you are getting the full tax relief on it. It's very unlikely that an 18 year old would be getting the full tax relief. 

Start saving in an ordinary scheme. 
When your son is paying top rate of tax, switch the savings into a pension scheme. 

Brendan


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## eirefinq (3 Jan 2010)

hi, i agree with the point about getting tax relief - it doesnt have to be at the top rate before you should consider starting though, lots of people will only ever pay tax at the lower rate (average industrial earnings are just over the threshold) so the point about the higher tax rate relief doesnt really stand up im afraid. the point i was trying to re-inforce was that the quicker one starts the easier it is to fund for retirement. i started at 19!


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## Brendan Burgess (3 Jan 2010)

It does stand up.

When you eventually get paid the pension it will be subject to tax. It may well be taxed at the top rate. It is pointless getting 20% tax relief on your contributions in while paying 37% on the way out. 

I am sorry for you if you were missold into contributing to a pension since the age of 18, but that does not make it right for others.

Brendan


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## eirefinq (3 Jan 2010)

what is the alternative way of providing for a pension for all of the people who do not pay tax at the higher rate then? Im in a defined benefit pension since 19 so I wasnt mis-sold anything


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## Brendan Burgess (3 Jan 2010)

They should save for their retirement, but not through a pension scheme. 

If your pension scheme was contributory, you were probably forced to make tax inefficient contributions to the scheme. Overall, the scheme may have been generous, so you are probably ok. But you would have been much better off getting the employer's contribution as gross pay and making your own arrangments. 

Brendan


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## lion_bar (3 Jan 2010)

If the OP believes they should do this now, then they should really have been doing it for the last 18 years.  

There's plenty of articles on the internet about using the Child benefit to start a pension for your new born child which would result in a pension fund of over £1 million when they reach 55.

I think this is an attractive but fanciful proposition for most parents.


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## Brendan Burgess (3 Jan 2010)

Yes, but if they put the child benefit in an ordinary savings scheme, the same result will be achieved.

If they put it in an ordinary scheme and then transfer it when the child is paying top rate of income tax, the fund will be much higher.


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## Sparkski (3 Jan 2010)

I'm baffled by the response of some people to this question.   In one of the key posts in the pensions section (http://www.askaboutmoney.com/showthread.php?t=6402) it clearly outlines the benefit of starting as early as posible.   What possible difference does it make what vehicle is used for the savings so long as it's happening?   If we put the money into a savings scheme there are fees hidden in it somewhere and there will be DIRT to be paid each year.  If we choose a pension there are still fees to be made but the tax is deferred until retirement thus you get the benifit of compound growth on gains without the revenue getting a slice.   Surely the option to take some portion as a tax free lump sum also mitigates against the final tax take.  btw.  He's 17 and in first year of college so it may only be another three years before he's out working and getting tax relief on the contributions.  

In response to Lion Bar I contacted New Ireland about this last year and they told me you had to be 18 to start a pension.


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## Brendan Burgess (3 Jan 2010)

Sparkski said:


> What possible difference does it make what vehicle is used for the savings so long as it's happening?



Just read some of the earlier posts in this thread and it will explain why you should not start a pension. You have to get beyond the industry's sales motto "You can't be too young to start a pension".


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## eirefinq (3 Jan 2010)

any fund growth in a pension fund is not taxed also. Brendan - i think you are being a bit cynical about the industry - if you are saving for anything it is never to early to start. it is not up to the industry to fund peoples retirement - it is up to them to provide vehicles to do that in line with tax reliefs provided by the government etc. It is up to the individual to fund for their retirement - the quicker you start the less cumbersome it is.


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## mmclo (6 Jan 2010)

> but the tax is deferred until retirement thus you get the benefit of compound growth on gains without the revenue getting a slice.   Surely the option to take some portion as a tax free lump sum also mitigates against the final tax take.  btw.  He's 17 and in first year of college so it may only be another three years before he's out working and getting tax relief on the contributions.
> 
> In response to Lion Bar I contacted New Ireland about this last year and they told me you had to be 18 to start a pension.



but you said there was no tax benefit from paying it in, you mean on the growth then? It's going to be pretty marginal, and there is the opportunity cost of nearly 50 year wait to see any of it! 

Also there are clearly going to be major changes in the tax treatment and regulatory regime in the next year or two so might be worth seeing how they pan out.


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## DerKaiser (7 Jan 2010)

eirefinq said:


> any fund growth in a pension fund is not taxed also. Brendan - i think you are being a bit cynical about the industry - if you are saving for anything it is never to early to start. it is not up to the industry to fund peoples retirement - it is up to them to provide vehicles to do that in line with tax reliefs provided by the government etc. It is up to the individual to fund for their retirement - the quicker you start the less cumbersome it is.


 
Just say the current tax treatment is a given and old age pension amounts remain the same.

At €17k p.a. you pay std rate tax and the levies.  This is just €6k p.a. above the level of the old age pension.

If someone starts a pension at the age of 18 and has a decent career progression they will most likely end up funding a private pension in excess of €6k p.a. 

In this scenario the will have paid in with std rate relief but are taxed at std rate relief plus levies on the way out for the privilege of locking away their money for 47 years! 

So the general advice I would give an 18 year old is to wait until you are paying higher rate tax before even considering a pension.  If that hasn't happened by the time you are 30 then you might want to reassess.


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## Mini3277 (11 Jan 2010)

DerKaiser said:


> Just say the current tax treatment is a given and old age pension amounts remain the same.
> 
> At €17k p.a. you pay std rate tax and the levies. This is just €6k p.a. above the level of the old age pension.
> 
> ...


 

You're forgetting that gains roll up tax free in a pension fund. What about setting up a self admin pension. Buy a house (investment) with a mortgage in the pension's name. You get a tax deduction on the mortgage repayments (i.e. pension contributions to cover mortgage). The gain (hopefully) achieved rolls up tax free and you get 25% out tax free....

It's not as clear cut at all....


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## DerKaiser (11 Jan 2010)

Mini3277 said:


> You're forgetting that gains roll up tax free in a pension fund. What about setting up a self admin pension. Buy a house (investment) with a mortgage in the pension's name. You get a tax deduction on the mortgage repayments (i.e. pension contributions to cover mortgage). The gain (hopefully) achieved rolls up tax free and you get 25% out tax free....
> 
> It's not as clear cut at all....


 
I think it is clear cut that you'll get the most out of your pension if all proceeds are taxed below the higher rate of tax and all contributions get relief at the higher rate of tax.


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## Mini3277 (11 Jan 2010)

DerKaiser said:


> I think it is clear cut that you'll get the most out of your pension if all proceeds are taxed below the higher rate of tax and all contributions get relief at the higher rate of tax.



It certainly is.... But the question is a pension for an 18 yr old a viable option. That question is not clear cut...


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## Complainer (11 Jan 2010)

I wouldn't assume that the upper rate tax relief on contributions will last for ever - future-proof whatever strategy you choose.


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## DerKaiser (12 Jan 2010)

Complainer said:


> I wouldn't assume that the upper rate tax relief on contributions will last for ever - future-proof whatever strategy you choose.


 
Good point.  

Problem is that reactive changes to tax legislation leave people with a lot of uncertainty around where and when they should invest.

What we need is a sensible and stable long term taxation strategy, not one that is influenced by lobby groups or indeed when the media are after their pound of flesh.


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## Eggball (22 Jan 2010)

I was offered a pension when I was 18 and thought it was a waste of money; when I did eventually start one in my late thirties I ended up paying a serious chunk out of my weekly wages.  The earlier you start, the less you'll pay in your middle years when you're likely to be struggling with mortgages and providing for children.  If you think pensions are a waste of money per se, then you shouldn't bother with one at all, but if you think it's worth starting one in your thirties then it's definitely worth starting one when you're 18.


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## Complainer (23 Jan 2010)

Eggball said:


> but if you think it's worth starting one in your thirties then it's definitely worth starting one when you're 18.


You need to look at it in the context of your overall financial position. Yes, the earlier you start a pension the better for the pension. But your overall financial position may be better if you concentrate your resources on your own house and/or your own business in your early years.


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## JR Rizzo (28 Jan 2010)

Complainer said:


> You need to look at it in the context of your overall financial position. Yes, the earlier you start a pension the better for the pension. But your overall financial position may be better if you concentrate your resources on your own house and/or your own business in your early years.



Agreed, in the context of big picture,
buying and running a HOUSE will be most important and financially stressful
activity of most people's lives.
Concentrate on getting roof over your head first (saving for deposit)
before worrying about retiring 50 years from now!

Who knows how your career and life will play out,
wait till you are more settled, on bigger pay, and can get better tax break
(ie 30 years old) before BOTHERING to join the pension pyramid scheme.

JR.


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## eirefinq (30 Jan 2010)

Eggball - your response is very good - its great to hear someone actually speaking from experience offering a view - i agree and 2nd your view 100%.


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## JR Rizzo (1 Feb 2010)

eirefinq said:


> Eggball - your response is very good - its great to hear someone actually speaking from experience offering a view - i agree and 2nd your view 100%.



do you two work in pensions industry??

there are many options open to 18 year olds,
eg if have discipline to regular save, NOT in a pension,
then when so-called middle age rolls around, 
the person can now access their savings AS CASH
for some life events that right now are way higher than retirement.

if they had "saved" in pension instead 
cant touch it until HOPEFULLY 65...

and on-top of this, we havent mentioned fund allocation and performance
variable
(an extreme example
if the young person had being "investing" in property based pension fund
from say 1997-2007, probably lost MOST of any worthwhile gain,
and also now, they have probably naturally lose faith with investing
and property, let alone pensions...

JR.


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## eirefinq (2 Apr 2010)

Brendan said:


> It does stand up.
> 
> When you eventually get paid the pension it will be subject to tax. It may well be taxed at the top rate. It is pointless getting 20% tax relief on your contributions in while paying 37% on the way out.
> 
> ...


 

just looking back on this - my understanding is that you are allowed to take 25% of the total fund tax free on retirement - if this is the case contributing now (whilst getting the lower tax break) does make sense for this reason. as u get older and earn more the higher tax breaks come into effect at that point. just to re-iterate my view on this subject once again - it is a brilliant idea to start saving for a pension as early into your career as possible - no use in waiting round.


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## Complainer (3 Apr 2010)

eirefinq said:


> it is a brilliant idea to start saving for a pension as early into your career as possible - no use in waiting round.


Unless of course you have a house to buy, or a business to invest in, or anything else to do with your money that doesn't involve tying it up until you retire.


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