# New Job - No Pension Scheme



## lledlledlled (11 Sep 2013)

Hi all,

Delighted to be starting a new job soon, after spending the last few years in college. The one thing missing from the package is a company pension scheme. When I asked about this I was told that "The Company does not have a pension scheme in place for employees, but if you wish to contribute to a PRSA I can have the Company pension advisor meet with you after you join."

I am 32 years old and have no pension worth mentioning (I have about five years contributions to Construction Industry pension which I'm afraid to look at it's value!). I've managed to emerge from college with a bit of savings in tact. I am married one year (to a newly qualified teacher).

What are my options regarding provision for retirement? Should I consider a PRSA, private pension, or are there other options? I have some pretty unsuccessful share holdings and most of the rest of my savings are in Prize Bonds which at least stay the same value (minus inflation of course) and give me the odd surprise every now and then.

Ideally I'd like something with a bit more certainty regarding a regular payment in my old age. Is this asking too much? I quite like delving into the stock market (despite my lack of success) but I am becoming more risk adverse and I acknowledge that it is really just a gamble unless you know your stuff. Also, my wife is _very _risk adverse.  

Thanks in advance for any pointers.


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## Steven Barrett (11 Sep 2013)

A PRSA is a perfectly good product. Your new employer is obligated to give you time to talk to their chosen adviser or to one of your own choosing. 

The charges on the standard PRSA are 5% off premiums i.e. €95 out of a €100 premium will be invested and a 1% annual management charge. That's it. No early exit penalties or policy fees. There is a restricted fund choice but it is not as bad as before. You can also start the premiums pretty low and your employer has to do any deductions through payroll so you get tax relief at source.

The non standard PRSA has greater fund choice and the management charges may be higher for certain funds.

As for investment choice, you really should do a proper risk tolerance test (not the rubbish offered by most life companies) and talk to the adviser on your risk profile, required returned and other factors that should be considered before a recommendation is made. 

I hope this helps.


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## lledlledlled (11 Sep 2013)

Thank you for the post.

I suppose I'm worried about putting aside a large % of my disposable income, only for some guy to invest it in what suits him rather than what suits me. I would hate to end up with a really poorly performing fund.

Is there any way that I'd just be better off saving an equivalent amount in a regular savings account and/or periodically putting a lump sum in a longer term account? Or would I be onto a loser straight away because I'd be missing out of the tax relief given on pensions? At least I'd know what the final amount will be. Might be tempting to dip into it from time to time though. Then again, access to it might be badly needed.

At my stage in life, I have a feeling that my expenses are about to go through the roof especially when kids arrive. This may cause the amount I can contribute to vary. Maybe the flexibility given by a PRSA would suit me. 

I suppose I'm just a but peeved that my new employer won't be contributing to my pension! I had taken this for granted.


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## RainyDay (11 Sep 2013)

You need to consider your overall financial situation. A pension is a long term investment for your retirement. How are your overall finances fixed, in terms of house and family etc?

A 5% fee is a huge fee. They are taking 5c out of every euro in your fund on the way in, and taking annual charges every year, and there is a Govt tax on the fund also. They only get away with this because of the substantial tax relief to higher rate taxpayers. If you're not a higher rate taxpayer, you might well be worth looking at other investment options, or at least shopping round to get a better rate than the 5% fee.


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## Steven Barrett (11 Sep 2013)

Set about a portion that you can live without. Decide on an investment strategy and do not deviate from it for at least 5 years. You aren't going to be able to get at this money for almost 30 years, so if it's down for a couple of years, don't worry about it. Warren Buffet, the worlds best investor leaves things for the long term, so why shouldn't we. The important thing is to get it right at the outset. 

Employer schemes are becoming rarer all the time and the average contribution is just 5%, nowhere near what is needed to get you what you need. 

Let me know if you need anything else.


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## Steven Barrett (11 Sep 2013)

RainyDay said:


> You need to consider your overall financial situation. A pension is a long term investment for your retirement. How are your overall finances fixed, in terms of house and family etc?
> 
> A 5% fee is a huge fee. They are taking 5c out of every euro in your fund on the way in, and taking annual charges every year, and there is a Govt tax on the fund also. They only get away with this because of the substantial tax relief to higher rate taxpayers. If you're not a higher rate taxpayer, you might well be worth looking at other investment options, or at least shopping round to get a better rate than the 5% fee.



You can get 100% allocation as long as you are prepared to pay for the advice that you are getting. Most people don't want to pay for financial advice and so opt for commission. Under the standard PRSA structure, it is either 5% or nil. If you want to pay the adviser through commission, you have to go down the non-standard PRSA route but leave yourself open to much higher annual management charges, which will cost you more in the long run.


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## David€advice (11 Sep 2013)

lledlledlled said:


> Hi all,
> 
> "The Company does not have a pension scheme in place for employees, but if you wish to contribute to a PRSA I can have the Company pension advisor meet with you after you join."


 
lledlledlled, in relation to the company adviser, check to see if they are tied to one insurance company, as this may immediately restrict your options, and you will be getting one-sided advice.

PRSA contracts can be good, but can also be very expensive. There are alternative pension options, and before you decide on what is best for you, speak to an independent financial adviser, who will outline ALL your choices. 

As the previous posters have also recommended, ensure you complete a Budget Review and a Risk Profile before deciding on any pension contribution, and once you are happy to start a pension, take advantage of the tax relief available now, as this is likely to reduce in the future.

Hope this helps, regards,
David


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## ClearFinance (11 Sep 2013)

You can get 96.5% allocation out there these days on a PRSA....I would contribute a small amount now to get it started if affordability is an issue just to get some tax relief. Tax relief is a must for a long term saving however it will be reduced or altered in the budget soon so people will regret not making the most of it while we had it. Savings and pensions are incomparable in my book when you have a reasonable term to go to retirement.

Regards
ClearFinance


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## kennyb3 (12 Sep 2013)

Best thing to do is spend 6-12 months educating yourself in the area, then go execution only (100% allocation) and find a 1% annual fee fund.

At the end of the day if you don't understand enough to go execution only - you shouldn't be investing in non standard/exotic funds.

By going execution only with LA brokers or the like you can pick out very basic Irish Life & Zurich funds that just invest in a broad base of equities, bonds and cash. 

I just manage my own mix of funds - there's very little to it, with these very standard products.


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## kennyb3 (12 Sep 2013)

ClearFinance said:


> Savings and pensions are incomparable in my book when you have a reasonable term to go to retirement.
> 
> Regards
> ClearFinance




If i'm 30 years to retirement;

- What will the TFLS be when I retire?

- What will the standard rate of tax be at that time? And at what level will it kick in?

- What will the annuity rate be at that time?

- What if the government introduces another annual levy on the fund value? 

Tax relief is great in theory - the problem is there is no long term pension commitment/plan from the government in this country.

It's very far from black and white.


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## ClearFinance (12 Sep 2013)

kennyb3 said:


> If i'm 30 years to retirement;
> 
> - What will the TFLS be when I retire?
> 
> ...




I agree that there should be a proper plan put in place and more education. I believe I read somewhere we will have a pensions minister soon so I am sure that will make some changes for better or worse.
Personally to me it is black and white in the current situation because I work in the industry and know the nature of these investments, however Ill use the below example to show where I am coming from.
If I put 100,000 into a pension that cost me 59000 and I payed a management charge on this each year and I could take 25000 of it tax free with the balance buying me a pension where I potentially could be paying tax on exit at 20% then this surely is a better investment than paying 100,000 into a savings plan which costs me 100000 and then you pay dirt on the growth. You are supposed to benefit from tax relief as an incentive for providing for your own retirement.Nobody can unfortunately predict what will happen in future, what about the levy on savings plans of 1% at present. I just know from working in the industry that when tax relief is reduced in the next budget people will probably start paying more into pensions because the theory will be oh no what if it gets reduced further I will have missed all the tax relief.

Also deposit rates given by banks at present are completely unsustainable as they are desperate for money at the minute and because of bail outs deposit rates will probably be zero this time next year so effectively your loosing money due to inflation if you went down this route.

That is my two cents anyways


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## orka (13 Sep 2013)

ClearFinance said:


> Personally to me it is black and white in the current situation because I work in the industry and know the nature of these investments,


Wow – you work in the industry and you consider it a black and white issue?  That a pension investment is always the correct course of action for a person?  Or do you mean you have to sell it as a black and white issue because you work in the industry?  What about a person paying lower rate tax now who will be paying higher rate tax in retirement?  Or even anybody who will be paying higher rate tax in retirement?  You don’t get PRSI/USC relief on your contributions but you have to pay them on your retirement income so you are double-taxed.  And then there’s the pension levy which is effectively a permanent 2.4% surcharge tax on your retirement income.  It is very far from black and white.



ClearFinance said:


> You are supposed to benefit from tax relief as an incentive for providing for your own retirement.


I suppose that’s the theory but what people forget in the rush of ‘ooh, free money’ – is that (a) if someone will be a higher rate tax payer in retirement, it is deferred taxation, not permanent tax relief; and (b) there’s no guarantee of what the tax regime will be over the next 40 years – but once your money is locked up, it’s gone and you have no access to it so if, for example, the pension levy became permanent, tough – you’ll have to suck it up.




ClearFinance said:


> I just know from working in the industry that when tax relief is reduced in the next budget people will probably start paying more into pensions because the theory will be oh no what if it gets reduced further I will have missed all the tax relief.


Following the lemmings over the cliff is not a reason to do something.  It doesn’t say much for the pension product if all the industry has to entice customers is ‘quick, you’ll miss the tax relief’.

Having said all that, there is value in a pension if you are a higher rate tax payer now and expect to be a lower rate tax payer in retirement AND you are willing to live in hope that the tax regime won’t change in a bad way before you retire...  Also, if you are not sure you can be strict with yourself about accessing alternative savings, then having your retirement money locked away can be a good thing.  

To the OP, I would focus your attention on finding a pension with the lowest charges as it makes a huge difference.  A 1.5% pa charge over your 36 years to retirement will take 40% of the value of your 1st year’s investment whereas a 0.75% pa charge will ‘only’ take about 22.5%.  Also focus on getting the biggest allocation possible – a 5% initial deduction might not sound like much but think of it as a permanent 5% tax surcharge in retirement...  Execution-only sounds like a good option for you as you say you are willing to do a bit of research – but there really isn’t that much research – pick one of the basic funds from one of the big companies, look for the lowest charges and then find an execution-only broker to set the pension fund up for you.  I don’t think there’s much to be gained by agonising over which company to go for – all of them will have literature showing they are #1 for something over some period of time and past really isn’t a guide to the future anyway.


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## kennyb3 (13 Sep 2013)

Good post Orka, I thought through a detailed response last night but couldn't even be bothered. Good pension advisors (like Liam Ferguson who posts here) at least acknowledge that it depends on circumstances, there are unknowns etc.

There are so many errors in clear finances post;

- Standard rate of 20%. USC & PRSI?
- Effective rate of tax at retirement is crucial
- Deposit rates will be zero soon (seriously!). You can look in good (and guaranteed) returns now for 5/10 years.


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## ClearFinance (14 Sep 2013)

orka said:


> Wow – you work in the industry and you consider it a black and white issue?  That a pension investment is always the correct course of action for a person?  Or do you mean you have to sell it as a black and white issue because you work in the industry?  What about a person paying lower rate tax now who will be paying higher rate tax in retirement?  Or even anybody who will be paying higher rate tax in retirement?  You don’t get PRSI/USC relief on your contributions but you have to pay them on your retirement income so you are double-taxed.  And then there’s the pension levy which is effectively a permanent 2.4% surcharge tax on your retirement income.  It is very far from black and white.
> I suppose that’s the theory but what people forget in the rush of ‘ooh, free money’ – is that (a) if someone will be a higher rate tax payer in retirement, it is deferred taxation, not permanent tax relief; and (b) there’s no guarantee of what the tax regime will be over the next 40 years – but once your money is locked up, it’s gone and you have no access to it so if, for example, the pension levy became permanent, tough – you’ll have to suck it up.
> 
> Following the lemmings over the cliff is not a reason to do something.  It doesn’t say much for the pension product if all the industry has to entice customers is ‘quick, you’ll miss the tax relief’.
> ...




First of all prsi is not due on all pension income so that is completely incorrect.second of all the pensions levy will last one more year and is 0.6%....if your going to trash talk my argument can you at least get your points correct


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## ClearFinance (14 Sep 2013)

Where my point was made is the op is 32, that is why I said it was black and white. he has 35 years to go until retirement, can i predict what future tax rates will be at retirement no I cant, I am basing my theory on what the current situation is.


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## ClearFinance (14 Sep 2013)

kennyb3 said:


> Good post Orka, I thought through a detailed response last night but couldn't even be bothered. Good pension advisors (like Liam Ferguson who posts here) at least acknowledge that it depends on circumstances, there are unknowns etc.
> 
> There are so many errors in clear finances post;
> 
> ...



I don't understand this point, You can look in good (and guaranteed) returns now for 5/10 years...does the op have a single premium amount to invest or wants to pay a regular amount.If so what are these rates you mean, can you be more specific?


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