# Pensions - how good an investment realistically?



## steadstill (26 Oct 2021)

I presume we can't mention specific companies in this, but are all the main Irish pension providers very similar in what they offer?

And are there viable alternatives?

Some context:


I'm looking at about 20 years before retirement.


I have a work colleague who is using an investment broker/portfolio as an alternative.


My pension is fairly standard, with typical risk with a well known provider. I did some maths around it - what jumps out is the fees are a very low percentage on paper, but by the time I retire they will accumulate to about one third of the total pension value. Taking into consideration the tax break that goes with pensions, I'll more-or-less get back what I put in (and that value can go up or down etc etc). In general, is this what I should expect?


I had a company pension before, for about 6 years, with a well known broker. I left the company, the (frozen) pension amount I got was about 20% lower than what I calculated it should be. When I asked them about it, they said it was due to economic conditions - but overall the global economy was healthy for the investment lifespan


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## Steven Barrett (26 Oct 2021)

steadstill said:


> I have a work colleague who is using an investment broker/portfolio as an alternative.



most of the options available that your work colleague has are also available under a pension. Except your employer can't contribute to the investment account without it being taxed as income. Your contributions won't attract tax relief.

People give out about their pensions all the time and when I have a look at it, they are invested in conservative investments that don't make any money. So what do they expect? People who invest in equities will make more money in the long term but will experience more ups and downs than those who invest in bonds. Risk and reward are related and you can't make higher than expected returns without taking higher than expected risk.


Steven
www.bluewaterfp.ie


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## AJAM (27 Oct 2021)

Because of their tax treatment, Pensions are the best available investment in Ireland.
But to get the most benefit from them (IMO) you need to be heavily invested in equities. Keep your "safe" or low risk investments outside of your pension as taxes are not as big of a factor for low return investments.

*Steven do you think that for people who are not investment savy and lets say are in the default lifestyle strategy in their employers pension, that those people would benefit hugely from 1 hour investment advice with someone like yourself?*

My guess is that the answer is yes. When I was much younger, a friend of mine offered to do a pro bono check on my pension (he was trying to become a financial advisor and wanted experience looking at real world examples). He pointed out some very basic mistakes I was making

Not taking the full employer match
Investing in very low risk bond funds even though I was very young
Investing spare after tax money in taxable accounts instead of maxing out my pre tax pension contributions
That meeting changed everything for me and I think it is one of the main reasons that I will have a very comfortable retirement.


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## Steven Barrett (27 Oct 2021)

AJAM said:


> *Steven do you think that for people who are not investment savy and lets say are in the default lifestyle strategy in their employers pension, that those people would benefit hugely from 1 hour investment advice with someone like yourself?*


Giving an hour of advice isn't what I do and isn't worth my while. Just like people wouldn't get an hour of advice off an accountant or solicitor. You wouldn't ring a plumber to get a few pointers in how to do something. 

Cheers
Steven


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## Allpartied (27 Oct 2021)

Steven Barrett said:


> most of the options available that your work colleague has are also available under a pension. Except your employer can't contribute to the investment account without it being taxed as income. Your contributions won't attract tax relief.
> 
> People give out about their pensions all the time and when I have a look at it, they are invested in conservative investments that don't make any money. So what do they expect? People who invest in equities will make more money in the long term but will experience more ups and downs than those who invest in bonds. Risk and reward are related and you can't make higher than expected returns without taking higher than expected risk.
> 
> ...



There seems to be an assumption that taking more risks will, inevitably, produce better returns.  
This is, inherently, contradictory.  More risk, surely means that you might get better returns.  But you might lose money.  Maybe lots of money. 
There seems to be some doubt about the long term likelihood of equities outperforming bonds.  Indeed, there is some evidence that bonds have outperformed equities over the last 20 years.   Bonds, remember, have, virtually, no risk and produce a guaranteed return.  










						Bonds Beat Stocks Over the Last 20 Years (Published 2020)
					

Over the long run, stocks are supposed to beat bonds. But they haven’t managed to do that uniformly since 2000, a sign of how difficult things have gotten for ordinary investors.




					www.nytimes.com
				




I still think that a state guaranteed retirement bond, issued via the State Savings Scheme, would be hugely popular.  It would incur minimal management fees, and yet it would still qualify for the tax relief.


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## Shirazman (27 Oct 2021)

Allpartied said:


> I still think that a state guaranteed retirement bond, issued via the State Savings Scheme, would be hugely popular.  It would incur minimal management fees, and yet it would still qualify for the tax relief.



Of course tt would be hugely popular!   But would it be fair competition for the commercial financial organisations?     And, if not, then would the EU allow it?


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## Gordon Gekko (27 Oct 2021)

And it would yield nothing in terms of return, bringing us right back to the OP’s ‘complaint’.


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## Allpartied (27 Oct 2021)

Shirazman said:


> But would it be fair to the commercial financial organisations?     And, if not, then would the EU allow it?


Surely, it would be up to them to prove that their fees, their expertise and their management of monies would be worth the additional cost. 

If we are facing a pensions crisis, then all options should be on the table.


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## Allpartied (27 Oct 2021)

Gordon Gekko said:


> And it would yield nothing in terms of return, bringing us right back to the OP’s ‘complaint’.



Did you read the quoted article? 
Over the last 20 years, bonds have outperformed equities.  
And there is a real chance that the same thing will happen over the next 20 years.


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## Steven Barrett (27 Oct 2021)

Allpartied said:


> There seems to be an assumption that taking more risks will, inevitably, produce better returns.
> This is, inherently, contradictory.  More risk, surely means that you might get better returns.  But you might lose money.  Maybe lots of money.
> There seems to be some doubt about the long term likelihood of equities outperforming bonds.  Indeed, there is some evidence that bonds have outperformed equities over the last 20 years.   Bonds, remember, have, virtually, no risk and produce a guaranteed return.
> 
> ...


You can't say that bonds produce a better return and have no risk. of course they have a risk. A very simple one is that interest rates increase. If you are in a long term bond, it can have a massive impact on the value of your bond. There is also inflation risk as well as default risk. As bond investors chase a yield in the current environment, they are investing in riskier bonds.


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## Steven Barrett (27 Oct 2021)

Allpartied said:


> Did you read the quoted article?
> Over the last 20 years, bonds have outperformed equities.
> And there is a real chance that the same thing will happen over the next 20 years.


Depends on what information you are looking at


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## Steven Barrett (27 Oct 2021)




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## Shirazman (27 Oct 2021)

Allpartied said:


> Surely, it would be up to them to prove that their fees, their expertise and their management of monies would be worth the additional cost.
> 
> If we are facing a pensions crisis, then all options should be on the table.



I would imagine that the onus would be on the State to satisfy the EU that its fully guaranteed, no risk, pension offering wasn't unfair competition.


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## Allpartied (27 Oct 2021)

Steven Barrett said:


> You can't say that bonds produce a better return and have no risk. of course they have a risk. A very simple one is that interest rates increase. If you are in a long term bond, it can have a massive impact on the value of your bond. There is also inflation risk as well as default risk. As bond investors chase a yield in the current environment, they are investing in riskier bonds.



But that's not risk as most people  understand it. 
If I put 100 euros on a stock and 20 years later it's worth 50 Euros, that's a loss.
If I put 100 euros on a bond and 20 years later it's worth 110 Euros, that's a gain. 
Of course, inflation is a risk, but the inflation risk can be managed by drip feeding investments into bonds, over time.  Which is the way most pension investments operate.  
Anyway, it would just be another option for people. Many people, as you have indicated, invest their money in very low risk instruments and are very risk averse.  At the moment, if you want to invest your pension in  Irish Govt bonds, you have to employ a financial institution and pay them a fee.  I don't see why the state can't offer a direct route for these people and it would, at least,  encourage more people to engage with their pensions. 
The SSIA initiative showed that when the govt thinks outside the box, they can influence huge numbers of people to save money, for the future.


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## jpd (27 Oct 2021)

Putting your savings into national Savings is the equivalent of buying a government bond


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## Gordon Gekko (27 Oct 2021)

Allpartied said:


> But that's not risk as most people  understand it.
> If I put 100 euros on a stock and 20 years later it's worth 50 Euros, that's a loss.
> If I put 100 euros on a bond and 20 years later it's worth 110 Euros, that's a gain.
> Of course, inflation is a risk, but the inflation risk can be managed by drip feeding investments into bonds, over time.  Which is the way most pension investments operate.
> ...


Something like tax relief maybe?


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## Steven Barrett (27 Oct 2021)

Allpartied said:


> But that's not risk as most people  understand it.
> If I put 100 euros on a stock and 20 years later it's worth 50 Euros, that's a loss.
> If I put 100 euros on a bond and 20 years later it's worth 110 Euros, that's a gain.


It's only a loss if you sell your stock at that point. You could have sold it at a higher or lower price before of after that 20 year period. Bonds will also fluctuate in value during the term of the bond but we do know that if it is a 20 year bond, you will get your €100 back at the end, not a penny more, not a penny less. Of course, your €100 in 20 years time won't be worth what it was 20 years previously. 



Allpartied said:


> But that's not risk as most people  understand it.


It still doesn't mean it's not there. Ignorance is not an excuse and doesn't mean the risk doesn't go away because you aren't aware of it. 

There will always be measurements of time that you will be able to find where a less risky asset class has outperformed a riskier one. I bet for that one example that article quotes, there are hundreds of other 20 year time periods (if using 240 monthly periods) where equities have outperformed. If I look at 01/01/200 - 31/12/2009, cash is the best place to be


But if I was investing all the way to today, cash would have been the worst place to keep my money


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## Allpartied (27 Oct 2021)

Gordon Gekko said:


> Something like tax relief maybe?


But the tax relief is only available , if you buy a private pension product.  That comes with fees, and all sorts of complex options. 
The private market forces have been allowed unfettered access to this tax relief and use it, quite openly, as a major selling point for their products. 
 And yet, they have failed, miserably, to engage 50% of the population.  
Time for govt to step up and provide a state backed pension bond.   Use the SSIA type incentive, which people clearly understood, and aim the product at people aged 50 and over, who have no pension arrangements.


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## Sarenco (27 Oct 2021)

Steven Barrett said:


> I bet for that one example that article quotes, there are hundreds of other 20 year time periods (if using 240 monthly periods) where equities have outperformed.


In the US, historically stocks beat bonds in just over 90% of 20-year rolling periods (per Jeremy Siegel).

The discussion in this thread may be of interest on this topic -




__





						Stocks for the long run?
					

Absolutely!  Why have I been so stupid :mad:   No need to be like that, but your case that there is a bottom that yields can go is not strong enough for me and I feel you are trying to predict future behavior, I think when it comes to wealth preservation people would happily lower there risk and...



					www.askaboutmoney.com


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## Gordon Gekko (27 Oct 2021)

Allpartied said:


> But the tax relief is only available , if you buy a private pension product.  That comes with fees, and all sorts of complex options.
> The private market forces have been allowed unfettered access to this tax relief and use it, quite openly, as a major selling point for their products.
> And yet, they have failed, miserably, to engage 50% of the population.
> Time for govt to step up and provide a state backed pension bond.   Use the SSIA type incentive, which people clearly understood, and aim the product at people aged 50 and over, who have no pension arrangements.


- For a lot of that 50%, the State Pension is enough

- There’s also an element of personal responsibility; some people should get up off their backsides and organise their own affairs rather than waiting for the State to spoonfeed them


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## Allpartied (27 Oct 2021)

Gordon Gekko said:


> - For a lot of that 50%, the State Pension is enough
> 
> - There’s also an element of personal responsibility; some people should get up off their backsides and organise their own affairs rather than waiting for the State to spoonfeed them


It's not a case of the state spoon-feeding, more providing an option and actively promoting that option. 

In the same way the state provides healthcare, education, transport infrastructure, policing, energy, etc.  Providing a pension service , via the state savings scheme might be beneficial and increase the number of people who reach retirement with a small amount of cash to supplement their state pension. People who are 50 plus and have no pension would find such a scheme attractive.  No risk, no fees and full tax relief. 
The savers would still have to engage a professional once they retire, to invest/manage their bond and provide the additional  income.


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## Jim2007 (27 Oct 2021)

> Bonds, remember, have, virtually, no risk and produce a guaranteed return.



All that statement tells me that you do not understand the risk profile of bonds.  But this is not unusual, as a performance and attribution specialist, I've heard it before, even from fund managers and traders.   More money is lost on bonds than equities because you are playing directly against the experts and in most case you don't even realise how much you lost.



> I still think that a state guaranteed retirement bond, issued via the State Savings Scheme, would be hugely popular.  It would incur minimal management fees, and yet it would still qualify for the tax relief.



Of course it would be popular, but it would be highly risky for the state and very expensive.  There is not magic involved, you need to get a return a return of about 8% and that costs money.


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## Allpartied (27 Oct 2021)

Jim2007 said:


> All that statement tells me that you do not understand the risk profile of bonds.  But this is not unusual, as a performance and attribution specialist, I've heard it before, even from fund managers and traders.   More money is lost on bonds than equities because you are playing directly against the experts and in most case you don't even realise how much you lost.
> 
> 
> 
> Of course it would be popular, but it would be highly risky for the state and very expensive.  There is not magic involved, you need to get a return a return of about 8% and that costs money.


I don't think you are understanding me.
Capital is safe, plus a small interest premium. Plus the 40% tax relief. 
The only way my capital is at risk, is if the state goes bust. 
A return of 8% per year is not required for those investors over 50. The state can offer the same interest rate as state savings,  which are still very popular. It doesn't need to compete with risky equity funds. It's a safe, capital guaranteed savings account, for your pension.
Sure I might lose out if equity markets perform like the last 10 years. But if they perform like the 10 years before that, I'm quids in. But,more importantly,  I will preserve my capital investment and never go negative.


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## jpd (27 Oct 2021)

Hope you have a lot of capital if you are hoping for a decent pension 

The difference between 0.5% on a govt bond and 6-7% on equities over a 25 year span is enormous


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## Paul O Mahoney (28 Oct 2021)

I think theres merit in the OPs suggestion that Government Bonds should also have the favorable tax treatment. I can see many people who's main objective is capital security would buy bonds, but as the idea that state bonds would sufficiently take care of someone's income requirements after retirement is probably optimistic. 

We do need to try and get more people to engage in having private pensions and sceptical investors who either don't trust or understand how pensions work it might be a way of getting people saving for retirement and that would be a good thing. 

If younger people were to say start earlier in providing for their pensions via state bonds and they then say by 40 had finished the heavy lifting of life, buying a house,  family etc, they would have a capital amount that would form the basis of 25 further years of investment strategy until retirement. 

The thoughts of starting to provide for pensions at 40 from a zero position is not ideal either. Some will have some type of pension in place via employers and then everything could be looked at.

I fully understand that returns on bonds will not be as good as pension products that are available but these products don't really appeal to everyone for a multitude of reasons.


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## NoRegretsCoyote (28 Oct 2021)

Paul O Mahoney said:


> I think theres merit in the OPs suggestion that Government Bonds should also have the favorable tax treatment.


In practice they do.

State savings products are a not insignificant €20bn (8% of total Irish government borrowing) and get favourable tax treatment in that the interest is usually DIRT free.

Of course there is no capital gain to be shielded but there is no default risk either and they are available to everybody.


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## Paul O Mahoney (28 Oct 2021)

NoRegretsCoyote said:


> In practice they do.
> 
> State savings products are a not insignificant €20bn (8% of total Irish government borrowing) and get favourable tax treatment in that the interest is usually DIRT free.
> 
> Of course there is no capital gain to be shielded but there is no default risk either and they are available to everybody.


I know that but I was thinking about the way pensions are dealt with at point of contributions.
Pension funds aren't liable to any tax annually either. 
If younger people are going to be enticed to start providing for retirement early and want a product where the swings and roundabouts of the global stock market are alien to them or they simply don't trust financial institutions then security of capital is a very big element that might sway them into saving for retirement. 

As say above only 8% of government bonds are owned by the population,  we know returns are scant but not everyone wants to gamble their few bob either.


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## Steven Barrett (28 Oct 2021)

Allpartied said:


> But the tax relief is only available , if you buy a private pension product.  That comes with fees, and all sorts of complex options.
> The private market forces have been allowed unfettered access to this tax relief and use it, quite openly, as a major selling point for their products.
> *And yet, they have failed, miserably, to engage 50% of the population.
> Time for govt to step up and provide a state backed pension bond.  * Use the SSIA type incentive, which people clearly understood, and aim the product at people aged 50 and over, who have no pension arrangements.


I presume you mean working population and not total population? 

Of those working, as Gordon says, the State pension is enough and they don't need a private pension. For the others, I would argue the biggest reason is they want to spend the money now and not put the money away for later. There is never a perfect moment to start a pension (actually there is, your first day of work, like in the public service), with constant demands on money. People get used to spending and having money and don't like the thoughts of having less now so they can have more in 3-40 years time. Well guess what, there's no secret formula that allows you to spend now and have money in the future too. 

If you are over 50 and have no pension arrangements, they are seriously playing catchup. Below are the monthly contributions required to fund a pension of €1m at 6% annualised return. 

40 years of pension funding - €502 a month
30 years of pension funding -  €995 a month
20 years of pension funding - €2,164 a month
10 years of pension funding -  €6,102 a month
5 years of pension funding - €14,332 a month
Even if you aim for a fund of €100,000 in 10 years at the current AER for the 10 year bond of 0.96%, it would cost you €794 a month. Of that €100,000 at the end, you would have contributed €95,000 of the €100,000. Hardly worth your while. 


Steven
www.bluewaterfp.ie


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## AAAContributor (28 Oct 2021)

Allpartied said:


> The private market forces have been allowed unfettered access to this tax relief and use it, quite openly, as a major selling point for their products.
> And yet, they have failed, miserably, to engage 50% of the population.



Not necessarily.

One main issue with pensions is that savings are locked up for the long-term. That creates a conflict in the human animal. Behavioural finance research has highlighted our inclination to choose immediate rewards over rewards that come later in the future, even when these immediate rewards are smaller ("hyperbolic discounting").

I take the point that the pensions area is too complex and that a more straight-forward relief like the SSIA proposal would be more attention-grabbing. However, you are still up against the force of hyperbolic discounting and also the individuals that would be investing in any new State initiative would be those with the means to do so, and I suspect people with the means to invest are already invested in the current pension set-up.



Allpartied said:


> At the moment, if you want to invest your pension in Irish Govt bonds, you have to employ a financial institution and pay them a fee. I don't see why the state can't offer a direct route for these people and it would, at least, encourage more people to engage with their pensions.



Arguably the State does provide a direct route already for pension investment products. The State owns most of AIB (albeit they use Irish Life I think for the underlying service).

We could beef up staff members in the NTMA or some other State agency (An Post?), create an administrative infrastructure to process funds, make payments etc.  Staff would be hired, probably unionised, and of course you would have to give them defined benefit pensions. There are plenty of private sector outlets that can do this cheaper than the State could.



Allpartied said:


> But,more importantly, I will preserve my capital investment and never go negative.



I think the point that @Jim2007 was making to you above was that interest rates go up as well as down and this can affect the value of a fixed-return security negatively and positively. Granted, this instrument you are proposing would not have a market price where people could watch the value of security fall. But, what if someone lump sum invests in a 10-yr bond and 2 years later the interest-rate environment changes for the worse (i.e. interest rates increase)? And worse, what if it is someone in their 20s? The opportunity cost in this situation is horrific. The argument has been made above that this can be managed by a drip-feed into an investment like this but inevitably people will lump sum invest and inevitably people will allocate too much capital that is inappropriate for their age. Marketing such an investment as risk-free for all is a little underhanded in my book.

One should engage with a professional and seek out good advice even if investing in a perceived lower risk product.



Paul O Mahoney said:


> If younger people are going to be enticed to start providing for retirement early and want a product where the swings and roundabouts of the global stock market are alien to them or they simply don't trust financial institutions then security of capital is a very big element that might sway them into saving for retirement.



I thank my lucky stars as a someone starting out investing in a pension in my early 20s (and would be a naturally conservative investor) that someone made me realise that I was at a stage in life where I had the most ability and capacity to invest in risk assets.



Allpartied said:


> No risk, no fees and *full tax relief*.



I would prefer as a taxpayer that the State would continue borrowing at 0% or negative where possible from the international capital markets. The State needs a lot of investment. The State does not need to pay more than it needs to for these funds which it would be doing so by offering tax relief.


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## Paul O Mahoney (28 Oct 2021)

AAAContributor said:


> I thank my lucky stars as a someone starting out investing in a pension in my early 20s (and would be a naturally conservative investor) that someone made me realise that I was at a stage in life where I had the most ability and capacity to invest in risk assets.



And that's true,  but today younger people are saving for deposits of multiple times we had to ours was £2000 in 1991 and the government gave us back £3000 a few months later.

Most of my children's age group lived through the crash and despite being young they fully understood broadly what happened, unemployment touched a lot of families and those memories are still fresh. 
Our son 20 states he'll never buy a financial product and squirrels away €100 per month into gold out of his part-time wages.  Any other money is simply on a demand account. 

Young people have changed the financial situation they find themselves in is very different to ours when we were that age, and they have the internet at their fingertips to inform themselves, rightly or wrongly on anything should be choose.

I don't think risk with the little money they might have would enthuse them.


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## AAAContributor (28 Oct 2021)

Paul O Mahoney said:


> I don't think risk with the little money they might have would enthuse them.



My youth is well behind me but I suspect that such a proposal as investment in government bonds (even with tax relief) would not enthuse them!

I think we get things the wrong way around in this country. We give the Centenarian Bounty of €2,540 to a 100-yr old at a stage of life where it makes not a damn bit of difference.

If it's not too David McWilliams-esque, and to your point about enthusing the young folk, would it be better to seed a pension fund for every newborn in the State? Let sixty-five years of compounding do some heavy lifting! Granted, there are a lot more newborns than 100-yr-olds which would be more costly upfront. But long-term returns and compounding may allow the State to dial back the future State pension (and or tax relief) as a result. By the time a young person completes their college and apprentice years, there will have been more than twenty years of investment performance behind them. Granted some cohorts will do better than others depending on when they were born, but to the point made earlier:



Sarenco said:


> historically stocks beat bonds in just over 90% of 20-year rolling periods



someone at the cusp of their working life and potentially considering pension options, already has skin-in-the-game and a more personal appreciation as to the power of compounding when they log-in to their pension account.



Paul O Mahoney said:


> Our son 20 states he'll never buy a financial product and *squirrels away €100 per month into gold out of his part-time wages. Any other money is simply on a demand account.*



This is a perfectly legitimate strategy - when money is being saved to pay for nightclubs and festivals. But this thread is about pension saving and the benefits thereof and we have to be mindful that we are all playing different games with our money. Your son has been perhaps scarred by reading about unfortunates who lost money on the "blue-chip" banks and property during the crash but those horror stories were a fault of lack of diversification, poor risk management/advice, greed etc. and not a fault of pensions. Do your son a favour and make him realise this. But again, your son is not saving (at the moment) to provide for himself when he reaches retirement, he has more short-term needs and goals and his approach is rational enough.


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## silverfox239 (28 Oct 2021)

An ISA type product like in the UK would be a simple tax efficient way for young people to,


 Get in the habit of saving
 Its tax efficient as growth is tax free
 Its post income / prsi / usc tax so no big hit to government revenue
 Not locked away until old age so can be used for home purchase, big trips, etc.     
I cannot for the life of me understand why the Government do not push for this type of product. 

It would surely get them more votes in next election as if they promote it as 1 piece of helping people to get on property ladder its a no-brainer.


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## Allpartied (28 Oct 2021)

jpd said:


> Hope you have a lot of capital if you are hoping for a decent pension
> 
> The difference between 0.5% on a govt bond and 6-7% on equities over a 25 year span is enormous


Ok, this is the crux of the matter. 
You cannot guarantee 6-7% return, annually, on equities.  If you could, the companies would be shouting it from the rooftops.
All you can say, is it will, probably, maybe, over time reach 6-7% per annum.  Then take the charges off, that figure, check the allocation rate and you might get 4% per annum.  But not guaranteed, far from it. 
Japanese equities are, currently, sitting below their 1989 levels.  That's 32 years ago. 
'Maybe, you think the conservative, cautious investor is an idiot and, maybe, you're right.  But, maybe, you're wrong. 

My idea was really floated at people who have no pension arrangements and reach 50 or 55 years of age.  They may have finished their mortgage, kids through college and they are earning more money than when they were younger.  Suddenly, they do have spare capacity to save.  Indeed, they could turbo charge a pension at this stage. 
A 70K salary , for a 55 year old, would allow 26250 Euros to be saved, per annum, with full tax relief of 40%.  
Once they got to 60 , they could increase to 30000 ( again with substantial tax relief) .  
So, they could, in 10 years save 280 000 Euros.  With 40% tax relief, the effective cost would be 168000.  

It's just an option and it could be used by long term investors too.  At 55, you could cash in your pension investment and stick it into the safe, secure, guaranteed vehicle, with no charges, continue making deposits.  

Of course, it won't happen and it won't happen because it would be hugely popular.  The vested interests, some of whom appear on these pages, would not be happy and they have the ear of the Dept of Finance.


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## Paul O Mahoney (28 Oct 2021)

silverfox239 said:


> An ISA type product like in the UK would be a simple tax efficient way for young people to,
> 
> 
> Get in the habit of saving
> ...


Forgot about those and yes it would start a good habit and that's what needs to be pushed.


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## Paul O Mahoney (28 Oct 2021)

AAAContributor said:


> My youth is well behind me but I suspect that such a proposal as investment in government bonds (even with tax relief) would not enthuse them!
> 
> I think we get things the wrong way around in this country. We give the Centenarian Bounty of €2,540 to a 100-yr old at a stage of life where it makes not a damn bit of difference.
> 
> ...


But pension funds did suffer during that time and since they were involved in buying stocks of companies that were essentially broke in any language they were part of the reason why things fell apart.
The financial world was awash with CDOs and those CDOs were bought by pension funds.
To say it wasn't the pension funds that caused it isn't accurate, they may have been hoodwinked by slick selling by the investment banks but they didn't carry out sufficient due diligence either. 

I've spoken with my son, and his goal is to have enough money to emigrate and as he says " in a country where money is not everything people talk about ".He'll have some difficulties finding one but it's his life.


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## jpd (28 Oct 2021)

> My idea was really floated at people who have no pension arrangements and reach 50 or 55 years of age.  They may have finished their mortgage, kids through college and they are earning more money than when they were younger.  Suddenly, they do have spare capacity to save.  Indeed, they could turbo charge a pension at this stage.
> A 70K salary , for a 55 year old, would allow 26250 Euros to be saved, per annum, with full tax relief of 40%.
> Once they got to 60 , they could increase to 30000 ( again with substantial tax relief) .
> So, they could, in 10 years save 280 000 Euros.  With 40% tax relief, the effective cost would be 168000.



Not sure that someone on a salary of 70k could save 26k a year but maybe ...
A pension pot of € 280,000 would give you a pension of around € 10,000 per year with no frills such as inflation protection, spouse pension,


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## steadstill (28 Oct 2021)

So to put some context around bonds - as a layperson:

I seem to remember my father many years ago getting worthwhile returns from state savings (long before the SSIA) - but it appears that has changed.

If I'm reading this right, Irish bonds have about 1% return per year for a 10 year commitment. For shorter terms, the return is lower. 

The current inflation rate in Ireland is about 4% per year (UK is about 3% and USA is about 5%).

Those numbers suggest it's a bad investment?

Also if the tax incentive is on the return - this is a very small gain? 

I don't see any substantial advantages over just saving money in a bank account? My bank (now leaving the country) were paying me 1% annually for 1 year commitments, not 10 year.


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## bstop (28 Oct 2021)

It doesn't really matter what sort of pension contributions method the government might introduce because at present no Irish government can be trusted. A previous government has raided the invested pension funds of its citizens. Until there is a law passed to guarantee that this will never be repeated, it is uncertain if investing in a pension in Ireland is a good idea. Pensions are a very long term investment and the rules should not be constantly changed by the government. Most recent changes made, have been to the disadvantage of the pension contributer.


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## AAAContributor (28 Oct 2021)

Paul O Mahoney said:


> But pension funds did suffer during that time and since they were involved in buying stocks of companies that were essentially broke in any language they were part of the reason why things fell apart...........To say it wasn't the pension funds that caused it isn't accurate



The danger I see here is tunnel vision. There is undue focus on the value of the fund/investment and not enough on the person investing and their risk management which hopefully they will have a good adviser guiding them on.

Of course funds went down in that time.

Someone five or ten years out from retirement will have been dialling back the risk of their overall asset allocation and this fall in markets would have been lessened.

Someone at the accumulation stage of the investment journey with a greater allocation in risk assets is grateful that stocks are trading at much lower multiples. Nicer bottles of wine in retirement!

The funds are not at fault. They are just a vehicle.


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## Sarenco (28 Oct 2021)

steadstill said:


> My bank (now leaving the country) were paying me 1% annually for 1 year commitments, not 10 year.


No Irish bank is paying anything remotely like 1% interest on one year term deposits these days.


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## Gordon Gekko (28 Oct 2021)

People are happy to get 0% for deposits these days.

This “goverment back bond/pension” stuff is a complete red herring.

We’d spend a fortune putting it together and then nobody would do it because lots of people either can’t be bothered or can’t afford to do it.


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## AAAContributor (28 Oct 2021)

bstop said:


> A previous government has *raided* the invested pension funds of its citizens.



This is too extreme.

The State had a serious situation on its hands. What if you lost your job during that time and were told social welfare was halved in value? Resources had to be drawn from somewhere. We are not all individual atoms on this island. We depend on each other in lots of respects:









						Protecting social welfare during the crash lessened income inequality - ESRI
					

A new report finds that protecting those on social welfare impacted on income inequality.




					www.thejournal.ie
				






bstop said:


> it is uncertain if investing in a pension in Ireland is a good idea. Pensions are a very long term investment and the rules should not be constantly changed by the government.



It is precisely because the pension reliefs in this country are so good that current or future governments may dial them back! Even if they do, after-tax investments will still be in the ha'penny place in comparison.


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## Allpartied (28 Oct 2021)

jpd said:


> Not sure that someone on a salary of 70k could save 26k a year but maybe ...
> A pension pot of € 280,000 would give you a pension of around € 10,000 per year with no frills such as inflation protection, spouse pension,



Yes, but , we can assume full entitlement to the state pension of 13k.   And 280k, could be used over a shorter period.  First of all, to maximise the tax free lump sum entitlement.   Then use the rest  duing the first 10/15 years of retirement, would be my recommendation.  
Once you hit 75 or 80 your spending habits will change.   Travelling will be more problematic, less appealing.  
This idea that you need the same income at 65, as you do at 90 is a little misleading.  Plus, there is a very good chance we won't make it to 75 or 80, let alone 90.


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## Shirazman (28 Oct 2021)

Allpartied said:


> Of course, it won't happen and it won't happen because it would be hugely popular.  The vested interests, some of whom appear on these pages, would not be happy and they have the ear of the Dept of Finance.



In other words you haven't bothered to consider any of the counter arguments as you are so convinced that you're right!   And you are!   Of course it would be popular, because it's a very populist proposal!     
(You wouldn't by any chance be an honours graduate of the Pearse Doherty Economic Academy, would you?)


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## Allpartied (28 Oct 2021)

Gordon Gekko said:


> People are happy to get 0% for deposits these days.
> 
> This “goverment back bond/pension” stuff is a complete red herring.
> 
> We’d spend a fortune putting it together and then nobody would do it because lots of people either can’t be bothered or can’t afford to do it.


It wouldn't cost a fortune.  The entire infrastructure is already there and all you would need to do is create another instrument on the State Savings scheme.


Shirazman said:


> In other words you haven't bothered to consider any of the counter arguments as you are so convinced that you're right!   And you are!   Of course it would be popular, because it's a very populist proposal!
> (You wouldn't by any chance be an honours graduate of the Pearse Doherty Economic Academy, would you?)


I'm happy to consider the counter arguments, once they are proposed. 
So far, all I've heard is people saying it won't make as much money as the equity investments, run by private institutions.  Which might be true, but might not be true. 
it's just another option.  I'm not sure what people are getting so worked up about.  Competition is good.  Isn't it?


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## AAAContributor (28 Oct 2021)

Allpartied said:


> there is a very good chance we won't make it to 75 or 80, let alone 90.



That's not how the numbers are looking. See 'Mortality Assumptions' in this link: 





__





						Population and Labour Force Projections 2017 - 2051 - CSO - Central Statistics Office
					






					www.cso.ie
				






Allpartied said:


> Yes, but , we can assume full entitlement to the state pension of 13k.



That's not how the numbers are looking. 

If we were to maintain the real value of the State Pension and assume there is a massive takeup of this idea as it is being assumed it would be "hugely popular", what would we cut back on in order to balance the shortfall in revenues to the State by offering such terms on the investment?


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## bstop (28 Oct 2021)

AAA contributor said

It is precisely because the pension reliefs in this country are so good that current or future governments may dial them back! Even if they do, after-tax investments will still be in the ha'penny place in comparison.
[/QUOTE]

The government can dial back on reliefs. Why would any citizen want to commit to a long term locked in investment when the government will not commit to a fixed set of rules for the investment term.


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## Gordon Gekko (28 Oct 2021)

Why would that citizen not just play the hand that they’re dealt and adapt if the rules change?

I’d feel like a bit of a clown if in 30 years’ time I’m struggling to buy a nice bottle of wine because I decided the pension rules might change and didn’t bother funding one.

They might evolve, or they might not, but the Approved Retirement Fund option, for example, is around for over 20 years. In that time the silly stuff has been cut-out (e.g. ARFs of unlimited value or ARFs being used purely as investment vehicles). But the whole thing has also been democratised now that more or less everyone can access them.


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## AAAContributor (28 Oct 2021)

bstop said:


> Why would any citizen want to commit to a long term locked in investment when the government will not commit to a fixed set of rules for the investment term.



They would be advised to do so because any tinkering that has heretofore been done (or may arise in the future) still leaves the citizen in a far superior place to the alternative route of non-pension saving.

Why would we tie the government's hands? Things change - such is life. As a collective grouping it is in the interests to promote long-term saving. There may be policy changes at the edges but unless the country goes to hell in a handbasket, I fail to see what material changes have been made (or could be made) to this area that would deter the average citizen with any sense to avail of what is on offer through this route.

You weren't by any chance someone who got caught by the changes to ARFs in the early days? I believe that when they were first brought in, the terms were exceedingly generous and I have heard anecdotally that an ARF or two above EUR 100million were accumulated and the rules had to be tweaked to knock that on the head.


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## JohnRoberts (28 Oct 2021)

jpd said:


> Not sure that someone on a salary of 70k could save 26k a year but maybe ...
> A pension pot of € 280,000 would give you a pension of around € 10,000 per year with no frills such as inflation protection, spouse pension,


Why would you buy an annuity? The rates are too poor and you loose control over your fund.


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## bstop (28 Oct 2021)

[QUOTE="AAAContributor said

You weren't by any chance someone who got caught by the changes to ARFs in the early days? I believe that when they were first brought in, the terms were exceedingly generous and I have heard anecdotally that an ARF or two above EUR 100million were accumulated and the rules had to be tweaked to knock that on the head.
[/QUOTE]

I am one of the ordinary hardworking citizens who managed to accumulate a modest ARF to pay for a subsistance life style in my retirement. I am also one of the citizens who objects strongly to the government raid on my PRSA. Just because certain millionaires managed to accumulate large ARFs, I do not agree that it was correct for Units to be taken from the PRSAs of the ordinary worker.


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## jpd (28 Oct 2021)

> Why would you buy an annuity? The rates are too poor and you loose control over your fund.



You might live to be 65+29 = 94 and then have no money left?

And remember, that in 28 years time, 10,000 will not be worth much - even if inflation is kept to 2%


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## silverfox239 (28 Oct 2021)

Given the 'Mortality Assumptions' link above and fewer workers to support pensioners bigger question is will the State Pension be 'means tested'

My guess.... government probably won't means test but just let inflation eat away at it, so really need private pensions and auto-enrolment.

Only Ireland & New Zealand out of the OECD countries still do not have auto-enrolment


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## Shirazman (28 Oct 2021)

Allpartied said:


> I'm not sure what people are getting so worked up about.  Competition is good.  Isn't it?



Fair competition is.   However, I'm not convinced that the _heads I win, tails someone else loses_ approach that you're espousing would be particularly fair.


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## Allpartied (28 Oct 2021)

Shirazman said:


> Fair competition is.   However, I'm not convinced that the _heads I win, tails someone else loses_ approach that you're espousing would be particularly fair.


State Savings Scheme competes with private institutions for deposits.  Not sure how it's unfair. 
Govt backed scheme offers state backed guarantee, but lower returns. 

Of course, when the financial system collapsed in 2008, those people who did use the security of the state savings scheme were no better off.  Indeed, they looked like right chumps .   They accepted a lower interest rate, to ensure security of funds.  Yet the state ended up guaranteeing all deposits in the private sector anyway, so the state guarantee was pointless.  
They might as well have lumped their savings into Anglo Deposits ( with higher interest rates) and joined the queue outside  Mr Lenihan's office, when the bank went belly up. Now that really was " heads I win, tails you lose. "


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## Conan (28 Oct 2021)

Allpartied said:


> Once you hit 75 or 80 your spending habits will change. Travelling will be more problematic, less appealing.
> This idea that you need the same income at 65, as you do at 90 is a little misleading. Plus, there is a very good chance we won't make it to 75 or 80, let alone 90.


For a male retiring at age 65, the average life expectancy is now c20 years (and about 3 years longer for females). And life expectancy rates are only going in one direction.


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## Allpartied (28 Oct 2021)

Conan said:


> For a male retiring at age 65, the average life expectancy is now c20 years (and about 3 years longer for females). And life expectancy rates are only going in one direction.



That's average.  Which means half of us won't get there.   
I had two relatives pass away in the last few years, both of whom made it to 95.  Great age and all that, but they really weren't able to do much in their final 10 years.  I mean they had a nice quality of life, watching TV, tipping about the house, eating their dinner, drinking their tea, chatting with children, grand children.   The State pension was fine, more than covered their expenses in those final years. 
Likewise my parents are both still alive, in their 80's.  But, with one thing and another, they don't travel much, they don't go out too often, they spend very little.  
Your scope for an active, action packed retirement is narrow.   And, as I say, for many getting past 80 is not going to happen.  
So, my advice, if you have some extra cash, is use it in your 60's or early 70's, because your ability or desire to do things,  will change as you age.


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## Shirazman (28 Oct 2021)

Allpartied said:


> State Savings Scheme competes with private institutions for deposits.  Not sure how it's unfair.
> Govt backed scheme offers state backed guarantee, but lower returns.



I completely accept your inability to understand my point and have no intention of wasting any further time responding.


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## AAAContributor (28 Oct 2021)

Allpartied said:


> That's average. Which means half of us won't get there.



That's correct. 

But if you drill into the numbers, those with higher levels of wealth live longer. 

I suspect that those who come to AAM are looking to make smart decisions with their finances and _may_ ultimately end up in this demographic. 

I'm not sure the advice to have 100% of pension assets in government bonds at retirement age and then to spend this down at an accelerated rate serves people well.


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## Conan (28 Oct 2021)

Irish Govt Bonds are currently yielding less than 1% pa. But Bond values are only guaranteed if you hold the Bond to maturity. Otherwise the capital value rises when interest rates fall , BUT the capital value FALLS when interest rates rise. 
So looking ahead, are interest are more likely to rise or fall? All the current evidence suggest interest rates are more likely to rise in the near future. So Irish Government Bond holders are getting a very low interest rate and may see capital values fall (if not held to maturity). Hardly an ideal investment strategy for retirees.


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## Jim2007 (28 Oct 2021)

Paul O Mahoney said:


> I've spoken with my son, and his goal is to have enough money to emigrate and as he says " in a country where money is not everything people talk about ".He'll have some difficulties finding one but it's his life.


No problem, he can come to Switzerland.  Money is not a topic of conversation here, we don’t even disclose salary levels on job ads and some contracts even prohibit it.


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## Jim2007 (28 Oct 2021)

Allpartied said:


> I don't think you are understanding me.
> Capital is safe, plus a small interest premium. Plus the 40% tax relief.
> The only way my capital is at risk, is if the state goes bust.
> A return of 8% per year is not required for those investors over 50. The state can offer the same interest rate as state savings,  which are still very popular. It doesn't need to compete with risky equity funds. It's a safe, capital guaranteed savings account, for your pension.
> Sure I might lose out if equity markets perform like the last 10 years. But if they perform like the 10 years before that, I'm quids in. But,more importantly,  I will preserve my capital investment and never go negative.


Oh I understand you perfectly, I’ve has 30+ year hearing this story while people continue tI loose money on bonds, but you just don’t see the full risk profile of bonds.


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## Jim2007 (29 Oct 2021)

bstop said:


> It doesn't really matter what sort of pension contributions method the government might introduce because at present no Irish government can be trusted. A previous government has raided the invested pension funds of its citizens. Until there is a law passed to guarantee that this will never be repeated, it is uncertain if investing in a pension in Ireland is a good idea. Pensions are a very long term investment and the rules should not be constantly changed by the government. Most recent changes made, have been to the disadvantage of the pension contributer.


You are right pension funds are long term investments and consequently no government can give you a long term commitment to the rules.  Pension and taxation rules change regularly all over Europe as does the state of economies and rates of return.   But despite all of that you are still more likely to be better off if you invest in a pension than if you don’t.


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## Jim2007 (29 Oct 2021)

Conan said:


> Irish Govt Bonds are currently yielding less than 1% pa. But Bond values are only guaranteed if you hold the Bond to maturity. Otherwise the capital value rises when interest rates fall , BUT the capital value FALLS when interest rates rise.
> So looking ahead, are interest are more likely to rise or fall? All the current evidence suggest interest rates are more likely to rise in the near future. So Irish Government Bond holders are getting a very low interest rate and may see capital values fall (if not held to maturity). Hardly an ideal investment strategy for retirees.


Well that is the theory, but it ignores a crucial element:  Irish issues are small and easy to manipulate and the biggest holder of Euro bonds is the SNB (Swiss National Bank), in fact they hold bonds equivalent to the deficit of the seven biggest Euro Group states as part of their capital reserve and Irish bonds are a big part of it.  They have admitted they they have on at least three occasions conducted market operations in defense of Irish bonds.  The SNB is the only central bank with both the depth of capital and the freedom to act in taking on the ECB, so I would not expect to see any long term impact on valuations for some time.  There are also many medium sized player who have issued various derivatives on the back of Euro bonds and even several synthetics out there.  That is why it is not recommended for small investors to buy individual bonds, especially those of small nations.


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## Paul O Mahoney (29 Oct 2021)

Jim2007 said:


> No problem, he can come to Switzerland.  Money is not a topic of conversation here, we don’t even disclose salary levels on job ads and some contracts even prohibit it.


Believe it or not, its on his list, Sweden also and while he has little knowledge of Asia he has a yearning to see Japan. 

But we know hes a HSP , highly sensitive person,and is not your typical 20 year and funnily enough all those countries acknowledge what good having that trait is/ does, especially for society.


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## Allpartied (29 Oct 2021)

Jim2007 said:


> Oh I understand you perfectly, I’ve has 30+ year hearing this story while people continue tI loose money on bonds, but you just don’t see the full risk profile of bonds.


I'm proposing a Deposit savings scheme using the Irish State Savings Scheme. 
It's not designed for international bond dealers, or fancy dan equity traders. 
But, if people are happy for the current failure to continue , so be it. 
Millions of people will still need a pension, housing, heating, healthcare, nursing home assistance, etc.  
But we can do it the Communist way, by redistributing wealth via taxation.   Suits me.


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## Shirazman (29 Oct 2021)

Allpartied said:


> I'm proposing a Deposit savings scheme using the Irish State Savings Scheme.
> It's not designed for international bond dealers, or fancy dan equity traders.
> But, if people are happy for the current failure to continue , so be it.
> Millions of people will still need a pension, housing, heating, healthcare, nursing home assistance, etc.
> But we can do it the Communist way, by redistributing wealth via taxation.   Suits me.



Thanks Pearse - hope you're enjoying the mid-term break!


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## bstop (29 Oct 2021)

Jim2007 said:


> You are right pension funds are long term investments and consequently no government can give you a long term commitment to the rules.  Pension and taxation rules change regularly all over Europe as does the state of economies and rates of return.   But despite all of that you are still more likely to be better off if you invest in a pension than if you don’t.


Pension contributions are given tax relief at the contribution stage and then taxed as income when they are drawn down.
This is deferred taxation.
A previous Irish government decided to add a wealth tax style levy to the assets of individual pension holders funds. This wealth tax hit the pension funds of workers on minimum wages as well as the most wealthy workers.
You seem to have good knowledge of other European countries banking and tax systems. Are you aware of any other country imposing a wealth tax on low paid workers pension funds.


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## Paul O Mahoney (29 Oct 2021)

Allpartied said:


> I'm proposing a Deposit savings scheme using the Irish State Savings Scheme.
> It's not designed for international bond dealers, or fancy dan equity traders.
> But, if people are happy for the current failure to continue , so be it.
> Millions of people will still need a pension, housing, heating, healthcare, nursing home assistance, etc.
> But we can do it the Communist way, by redistributing wealth via taxation.   Suits me.


Ah here your idea isn't that out there but this distribution of wealth is utter nonsense,  the only distribution you want is from those who pay for everything anyway. 

During lockdown income tax receipts didn't fall off a cliff so using a back of envelope calculation 350000 people who got pup either paid no tax or very little tax prior,  ie they work tax free and now you want to subsidise them further?

Get up the yard.


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