# Never to early to start ?



## propertynewbie (22 Jul 2003)

Hi, just a quick question, from a beginner  

At the moment I am in a good job and would hope to stay on for another few years and would like to start to contribute to a pension fund.

There isn’t anything in place by my employer at present; from what I have read this is going to change in a while with the advent of PRSA's, correct?

Would I be better waiting for my employer to implement the PRSA scheme or start my own fund?

Also can you have joint pensions with your partner or would it be better to have two separate ones?

As always any advice or recommendations are greatly appreciated.

PN


----------



## ClubMan (22 Jul 2003)

*There isn’t anything in place by my employer at present; from what I have read this is going to change in a while with the advent of PRSA's, correct?*

From September 15th employers have to facilitate choice or and access to (e.g. via payroll deductions) at least one PRSA unless they already have occupational schemes in place for all employees. However there is no onus on them to make contributions on behalf of the employee themselves. If you are considering going with whatever PRSA(s) your employer provides access to make sure that the charges are reasonable (consider the standard PRSA charges caps of 5% on contributions and 1% p.a. management fee as the maxima that they are and try to get a better deal if at all possible)and if they can be bettered by other PRSA or conventional personal pension plan/retirement annuity account offerings elswehere (see ) don't be afraid to select your own. I think employers will have to facilitate payroll contributions to whatever PRSA you select.

*Would I be better waiting for my employer to implement the PRSA scheme or start my own fund?*

If you've decided that you need to start making provisions for retirement now then the sooner the better. In any case I would not rely on my employer or anybody else to get me the best deal in this context.

*Also can you have joint pensions with your partner or would it be better to have two separate ones?*

PRSAs are personal by definition so I don't think joint accounts are possible. In fact I'm not sure that joint pensions of any sort are normally possibly (other than special roll your own investments outside the scope of tax relief rules etc.).

Don't disregard the possibility of a traditional personal pension plan/RAC offering a better deal than a PRSA. Shop around!

Does this all make sense? Hope it helps.


----------



## Conan (22 Jul 2003)

*Pension Plan*

If your employer does not currently operate a Pension Plan, then by 15th Sept next he will have to put in place a PRSA facility for all employees.
The employer however is not required to contribute to your PRSA.
If you do something now (without waiting for PRSA) your only option is to effect a Personal Pension Plan. In the circumstances I think it is better to effect a PRSA as it offers greater flexibility around portability, particularly if you plan to move in a few years.
Another advantage of going the PRSA route is that you can have contributions deducted at source (and have tax relief allowed at source). Remember however that if you contribute to a PRSA and thus make a tax saving (PAYE &PRSI), your employer also makes a tax saving equal to 10.75% of your contribution (since PRSI is levied on gross salary less any personal contributions to an approved pension plan). So perhaps you can convince your employer to at least contribute the PRSI tax saving he is making.

It is not possible to have joint pensions with ones partner. Each individual is separate, so she should arrange her own pension, depending on her employment status.

Hope this helps.


----------



## ClubMan (22 Jul 2003)

*Re: Pension Plan*

*If you do something now (without waiting for PRSA) your only option is to effect a Personal Pension Plan.*

I don't understand this. One can effect *either* a personal pension plan/RAC *or* a PRSA right now. Effecting a PRSA now doesn't jeopardise the opportunity to participate in the employer's payroll contribution facility from September 15th. An RAC will not fit into the post September 15th PRSA payroll contribution mechanism.


----------



## Conan (23 Jul 2003)

*PRSA*

Dear ClubMan,
Under PRSA legislation, an employer is only required to enter into an arrangement with at least one PRSA provider. If the employee effects a PRSA now, before the employer establishes a PRSA facility, it could be that they will choose different providers. In that case the employer is under no obligation to facilitate deductions from salary to a second PRSA provider.
Since it is only a matter of some 7 weeks before all employers establish a PRSA facility (what's the odds on that?), I was suggesting that it is probably better to wait until the employer establishes the PRSA facility and then decide what to do.
If the employee wants to go with a different provider, the issue of whether the employer will facilitate salary deduction might be an important issue. 
Yes it is fair to point out that a Personal Pension Plan is an option and that it is not automatic that PRSAs will be cheaper. However taking all factors into account (portability, salary deduction facilities etc) I think that a PRSA is probably the best route.


----------



## propertynewbie (23 Jul 2003)

*Re: PRSA*

Thank you for all your replies. I might just hang on the extra few weeks. Very interesting point about asking my employer to contribute the tax saving they will be making on contributions.

Will post details of the PRSA and then see where I will go from there.

Again thanks,

PN


----------



## ClubMan (23 Jul 2003)

*Re: PRSA*

*Under PRSA legislation, an employer is only required to enter into an arrangement with at least one PRSA provider. If the employee effects a PRSA now, before the employer establishes a PRSA facility, it could be that they will choose different providers. In that case the employer is under no obligation to facilitate deductions from salary to a second PRSA provider.*

Thnks for clarifying that _Conan_ - I was obviously mistaken above and had missed the following point in the [broken link removed]:

_*Q. If I enter into a contract with a PRSA provider, must my employees who want to take out a PRSA have to take out this Standard PRSA with that provider?*

No, an employee can go to any authorised PRSA provider but you are not obliged to make deductions from payroll for that employee. In such a case they would make PRSA contributions directly to the provider, by, for example, direct debit or cheque._


----------



## rainyday (23 Jul 2003)

> Never to early to start ?



I'm not sure that I'd accept this premise. Have you got a house? If not, you are likely to be scrambling round for a house deposit over the next few years, and your pension money will be locked away in the fund until retirement.


----------



## propertynewbie (23 Jul 2003)

Hi rainyday,

At the minute am just closing on the purchase of my first property. Am 21, but have always been told and read that the sooner one starts a pension the better ?.


----------



## rainyday (23 Jul 2003)

> have always been told and read that the sooner one starts a pension the better



This is generally a line spun (quite successfully) by the pensions industry (and generally accepted by the gullible public). All other things being equal, then yes, the sooner the better. But there is no point in putting money into a pension if you

- paying off car loans at 10%
- paying off credit card bills at 18%
- scrambling round for money for house/wedding/baby etc.


----------



## Conan (23 Jul 2003)

*Never too late!*

Maybe I just have more faith in the "gullible" public than you have, but if you only plan to start a pension after you have:
*Paid for your house
*Got Married
*Reared children
*Paid off any car loans
*Paid off all credit card bills
*etc, etc....
it will just be too late.
Sure, one has to balance competing demands for cash, but I don't accept that starting a pension plan at a young age (whatever that is!) is proof of gullibility. Compartmentalizing one's cash demands can be an appropriate strategy in terms of ensuring a degree of financial discipline across all competing demands.


----------



## rainyday (23 Jul 2003)

*Re: Never too late!*



> but if you only plan to start a pension after you have:



Hi Conan - That's not what I said (or what I practice). I have a mortgage & I contribute to a pension, but I don't have car loans or credit card bills outstanding.



> it will just be too late.



Let's drill into this - Why is it ever too late? Common wisdom is that you have to get in early to get the benefit of compounding on your investment. But why should one prioritise the benefit of compounding at 6% pa for an equity-based pension over the drag of compounding of 10% car loan or 18% credit card bill on the other side. Surely it makes more financial sense to clear off the high-charging loans first?


----------



## zag (29 Jul 2003)

*Re: Never too late!*

Rainyday - but it also makes sense to begin saving early, despite what you might be repaying.  Unless of course you are deeply in debt and have no discretionary income at all.

If you never start saving, you will never get into the habit.

People will continue to spend money on other items (holidays, etc . . .) while paying off other debts, so why not spend money on a pension too if you can at least partly afford it.

z


----------



## rainyday (30 Jul 2003)

*Re: Never too late!*



> so why not spend money on a pension too if you can at least partly afford it.



Hi Zag - Because it doesn't make financial sense - the rates you are paying on your debts exceed the return you are getting from your savings. You will be financially better off in the long run by clearing your debts first, then getting your savings going.

Maybe I'm taking a naive, purist view and ignoring the human issues involved. Of course, there may be a tendency to keep spending and avoid saving, unless it is tied up.


----------



## tedd (30 Jul 2003)

*Re: Never too late!*

Some of the more successful debt management programmes suggest saving and paying off debt at the same time, presumably to increase the likelihood of developing good habits for when all your debt is paid off. 

The other advantage of saving while repaying debt is the "rainyday" theory...the person is likely to have some cash for future emergencies and will be less likely to end up even deeper in debt.

tedd


----------

