# Am i right to hold off on starting a pension?



## Sharky (7 Dec 2008)

I mean in these recessionry times


----------



## markowitzman (7 Dec 2008)

no


----------



## Askar (7 Dec 2008)

markowitzman said:


> no


 

A detailed, yet succinct and thought provoking response!

While I would genuinely believe that following Buffett into Equities at this stage would be an excellent idea - unless of course we the capitalist system is kaput and then we have greater problems then simply pensions; unfortunately, I think a serious question mark hangs over the validity of handing money over to Irish managed funds with opaque charging structures that generally deliver very poor performance. The rubicon figures for Irish managed funds in Thursdays' Times were apalling indictment of their ability imo - they delivered negative returns when adjusted for inflation over the last 5/10 years.  While brokers will no doubt post about this terrible bear market; I think the 'value added' of the knowledge which you apparently buy with these funds has a negative value; they can't predict bubbles and adopt random, self interested investment strategies - you might as well buy some ETFs and pay contribution to financial funds industry. The tax break is simply a support incentive for this industry.


----------



## mula (8 Dec 2008)

Sharky said:


> I mean in these recessionry times


 
no you should'nt put it off if you can afford it and are paying income tax.  if you do your missing out on the tax and prsi relief aswell as the tax free growth. if your concerned about the current market start your pension and invest it in a cash fund until things settle down.


----------



## DerKaiser (8 Dec 2008)

Askar said:


> A detailed, yet succinct and thought provoking response!
> 
> While I would genuinely believe that following Buffett into Equities at this stage would be an excellent idea - unless of course we the capitalist system is kaput and then we have greater problems then simply pensions; unfortunately, I think a serious question mark hangs over the validity of handing money over to Irish managed funds with opaque charging structures that generally deliver very poor performance. The rubicon figures for Irish managed funds in Thursdays' Times were apalling indictment of their ability imo - they delivered negative returns when adjusted for inflation over the last 5/10 years. While brokers will no doubt post about this terrible bear market; I think the 'value added' of the knowledge which you apparently buy with these funds has a negative value; they can't predict bubbles and adopt random, self interested investment strategies - you might as well buy some ETFs and pay contribution to financial funds industry. The tax break is simply a support incentive for this industry.


 
Have a look at mula's answer for a lesson in communicating a simple idea


----------



## LouisCribben (8 Dec 2008)

The markets are well down from their peak.  For example, on 21st November the ISEQ hit a 13 year low.  The ISEQ on this date was 25% of it's value at its peak in 2006.
Other indexes worldwide had similar falls.

[broken link removed]

Does this make it a good time to start a pension ?

It's definitely better to start a pension now, than it would have been 2006.
Nobody knows if stocks and other asset classes are currently undervalued, they may be. Or they may fall further.

A pension is a long term thing. The success of a pension depends on what happens over the next 30 years (or however long your pension will go on for). 
When you look at you pension in 30 years time, what happened between 2008 and 2009, and 2009 and 2010 wont make a huge amount of difference.

The amount of money you put into your pension in 2008 and 2009 will be just a fraction of the total invested in the pension over 30 years.

Every year your pension will buy units at the market rate. It's more important what happens to the market between the year 2035 and 2036 that what happens between 2008 and 2009, because by that time you'll have a far greater amount invested.

I'd have no logical problem starting a pension now.


----------



## Sharky (8 Dec 2008)

My whole concern about pensions is all the factors I frankly know little about. I undersatdn the tax breaks etc and that it is a long term investment.

Where I have a problem is trusting any bank to do the right thing with my money seen as they have been shown to be managed very badly.

Also lets say I started my pension today for say 30 years (2008 to 2038) and everything was going well - the plan was making money and then in the 30th year (2038 when my plan was due mature) we had another recession could the value/ gains be completly wiped? 

Like are those people whos pensions were to mature in 2008 - 2009 all after taking huge cuts in the profits from their pensions in comparison to say 2005 early 2006 when the economy was still holding up.


----------



## Don_08 (8 Dec 2008)

Pension Investments should follow the risk profile. It is recommended that in the ten/ fifteen years prior to retirement people should move their equity portion gradually over to bonds/Cash over the remaining period ( depending on what way they wish to take their pension).

Its a long term investment.

Would see something along those lines to retire at 65

Age less than 55 - 100% Equities

56 - 90% Eq, 2.5% Cash, 7.5% Bonds
60 - 50% Eq, 12.5% Cash, 37.5% Bonds
64 - 10% Eq, 22.5% Cash, 67.5% Bonds

Some companies do this as a lifestyle option.

Beware the scaremongering, the majority of DC members close to retirement have not lost vast amounts of their pension as if they had followed advice and been properly managed, most of their money would be in cash and bonds at this stage.

If you can afford to set aside some cash as a pension, you would be better off doing it.  And forget about short term gains or losses - its a long term investment.  Its like a house, you have not lost or gained anything til you sell


----------



## DerKaiser (8 Dec 2008)

Sharky said:


> My whole concern about pensions is all the factors I frankly know little about. I undersatdn the tax breaks etc and that it is a long term investment.
> 
> Where I have a problem is trusting any bank to do the right thing with my money seen as they have been shown to be managed very badly.
> 
> ...


 
Default strategies exist where people are switched towards safer assets as they approach retirement.  

In my opinion anyone with less than 10 years before retirement should not be invested heavily in equities.

This issue was well recognised in the industry but many people either ignored advice they were given or were not given good advice on this matter


----------



## boaber (8 Dec 2008)

Sharky said:


> Where I have a problem is trusting any bank to do the right thing with my money seen as they have been shown to be managed very badly.



If you don't trust a bank to manage your money, you could always choose a pension provider that is not _tied_ to a bank, such as Friends First, Eagle Star, Canada Life, Standard Life etc.


----------



## Askar (8 Dec 2008)

DerKaiser said:


> Have a look at mula's answer for a lesson in communicating a simple idea


 

As you have not contributed any simple ideas to OP should keep your suggestion to yourself.


----------



## Louisb (12 Dec 2008)

At the moment I think it is really hard to say anything about pensions. I will be making a decision soon re my own payments to a personal retirement plan with Canada Life. The fund is worth considerably less (13k) than the amount I have paid in over the past 8 years. I think I would be better overpaying my mortgage by the the amount I currently put into the pension. At present it is going into a black hole.


----------



## allthedoyles (13 Dec 2008)

Louisb said:


> The fund is worth considerably less (13k) than the amount I have paid in over the past 8 years. I think I would be better overpaying my mortgage by the the amount I currently put into the pension.
> 
> Of course , way better off paying off your mortgage first .
> 
> ...


----------



## dub_nerd (13 Dec 2008)

I have watched the last few months of pension investments go down a complete black hole -- with each contribution the fund value ends up lower than before the contribution was made. Not to worry, I have heard from many quarters, a pension is a long term investment. Well, I've had mine for sixteen years, and am about the same amount away from retirement, so you could say I am half way through.

After the first eight years, my pension was switched from one company to another (both of whom shall remain nameless) on advice that the first company had much too high charging structures. At the end of that eight years, which happened to coincide with the end of the tech stock bubble, my pension fund was worth less than the total contributions made to it. Now, another eight years on, it has been completely hammered again. Even the terrible five and ten year performance figures for pension funds don't tell the whole story. Typically, one invests more in a pension as one's wages increase. So a lot more money has been invested in the past few years than previously. Money that has been invested in the past two or three years has been almost completely wiped out. At this point, if I had taken all my pension contributions, and instead of paying them into the pension had paid 41% tax on them, and stuffed them under a mattress, they would be worth more or less exactly what the pension fund is now worth.

So, what are the prospects for the future. Well, if the pension company's projections about expecting 6% growth (the first company used to send projections about 12%, LOL) turned out to be true for the *next* sixteen years, unlike the last sixteen, my pension would still be a pittance, because the performance has been so poor to date. However, what's the likelihood of even THAT? The economy could dawdle for years in the current recession, there will quite likely be at least one hammering of the market in sixteen years, and one is not advised to leave pension money in high-risk-high-return equities for the whole duration anyway.

So, I would say, think long and hard about a pension. I know of award-winning pensions salespeople who DO NOT HAVE PENSIONS -- they don't believe in them. That's not to say you should just bury your head in the sand and do nothing -- you have to have SOME plan, and some investment, but don't imagine that you are buying something bullet-proof by paying a fund manager to manage your money. Also, to those who say "but pension contributions are tax-free" ... yes, but only on the way in, not the way out, and that saved tax has to be invested wisely or it will not be a gain. As somebody said above, be careful that the tax-free element is not just a subsidy to fund managers to persuade people to fund their own retirement. Make sure you understand what you are being charged to have your money managed -- many people have no clue what they are paying, and assume that all pensions are similar. You want good value, as with anything you buy.

And finally, although pension laws have been liberalised in recent years, there are still constraints on what you can do with your own pension money at retirement. Take this into account when comparing against other options.


----------



## DerKaiser (13 Dec 2008)

I think most of the answers here have been too focused on the investment strategy.

The first question to ask is how much do I think I can live on in retirement.

A second question is how do I achieve this level of income. Your options here could be a pension or maybe an alternative such as investment property whose rental income you could live off in retirement.

If you go with a pension, the 3rd question is can you afford to put away this money. Basically once you put money into the pension the only way you're getting it back is as income in retirement (apart from a certain amount that can be taken as a tax free lump sum on retirement).

Only at this point then are the investments you choose relevant. You should have made the decision on whether to take out a pension independently of the investment options. This is because pretty much all the things you could invest in outside of a pension (property, shares, government bonds and cash) are available as pensions investment choices.

The major attraction of a pension for the ordinary punter is the tax treatment. The best way to illustrate the benefit is by a simple example.

Someone earning €41k per annum pays higher rate tax on about €5k (The amount above €36k). If they contribute this €5k to a pension they don't won't have to pay this tax. In effect you get a €5k injection to your pension fund but it's only costing €3k as you have cut yout tax by €2k.

The proceeds of a pension will be taxed on reirement in the same way as normal income tax. The benefit arises from the fact that you are using your tax free allowances in retirement. At the moment I think these are €20k per annum, so if you're putting away less than €10k per annum chances are you will have no tax to pay in retirement despite having benefitted from the tax break on the contributions.

Just one other point is that it's not necessarily better to pay off the mortgage rather than starting a pension. Many wealthy people with good tax accountants actually go interest only on their mortgages and pay more into their pensions, paying off the mortgage with their tax free lump sum at retirement.


----------



## upport (13 Dec 2008)

Are your pensions unit linked or with profit? Are you still contributing?


----------



## upport (13 Dec 2008)

Dub_Nerd,are your pensions unit linked or with profit? Are you still contributing?


----------



## putsch (13 Dec 2008)

Dub Nerd

Thanks for taking the time with that post - its reflects my experience too. 

I get really annoyed with the pensions industry campaign to make "pensions" mandatory when what they are actually seeking is more money into investment funds. There are many ways to fund retirement and the riskiness of the stock market (even over the much stated "long term") is not my choice. I also feely somewhat cheated about the massive tax breaks most aggressively utilised by the wealthy. Is it any wonder our public services are struggling with so little tax being paid in.


----------



## roker (14 Dec 2008)

Your pension will of course take you over the threashold for claiming a medical card, so all expenses, Hospital, drugs, dental etc you will be paying until you are 70yrs. I do not have figures but make it a decent size pension or it is not worth it.


----------



## ClubMan (15 Dec 2008)

roker said:


> Your pension will of course take you over the threashold for claiming a medical card, so all expenses, Hospital, drugs, dental etc you will be paying until you are 70yrs. I do not have figures but make it a decent size pension or it is not worth it.


If you have a while (e.g. several years to a few decades) to go to retirement then who knows what the medical card qualification criteria might be then?


----------



## dub_nerd (18 Dec 2008)

upport - my pension is unit linked ... 100% in equities, mostly "safer ones" ... i.e. banks and stuff that have only fallen, oh, about 90% or so. Yes, I am still contributing on the advice that "you're wrong to try to time the market". Actually, I considered moving it all out of equities in August 2007 when my own gut feel told me the S was going to HTF, but inertia stopped me, as it is now stopping me from stopping contributing.

I hear "with profits" have weathered the storm somewhat better.


----------



## DerKaiser (18 Dec 2008)

.....and cash and government bonds a lot better again.

If you are providing for a basic retirement income (maybe €10k p.a. on top of the Old age pension) the best match is to invest your pension in government bonds

1  It is the safest
2 It is the best match if you are buying an annuity

People have to view equities and property for what they are, a gamble best suited to money you are not relying on to provide a basic standard of living


----------



## upport (18 Dec 2008)

100% equities is high risk strategy and therefore will provide the highest levels of ups and downs.By staying invested and continuing contributions you will accumulate an additional volume of units during this downturn and will benefit substantially when upturn arrives.With 16 years to retirement the cheap units you purchase over the next few years will greatly enhance your pension fund when/if the unit price recovers.Without a crystal ball its difficult to predict a recovery time but hopefully ten years will be adequate and then you could commence a consolidation strategy six years from retirement.

If your attitude to risk has changed to conservative,a range of low risk options are available.


----------



## developer (3 Jan 2009)

a pension that is invested in irish shares  is complete madness. ireland is a small country that could easily be wiped off the map financially. if we werent a part of europe our currency would have collapsed in value and there would be hyperinflation on imported goods. bank accounts even in foreign currencies may well have been frozen like whats happened in iceland. who knows what the future may bring?

bonds and cash may also not be safe. if there is hyperinflation then an asset like shares would perform far better. just ask the folks in zimbabwe!

the theory is shares should provide a higher yield than bonds and cash as there is more risk. unfortunately many shares in many companies are far too expensive when one considers the risk.


----------



## Bob_tg (4 Jan 2009)

I think it's a good idea to put money aside or have an investment strategy for some kind of retirement plan.  

Whether that should be all in Irish pension funds is highly debatable, as we have seen in this thread.


----------

