# Should I stop/reduce my payments into PRSA



## MandaC (13 Oct 2008)

I have a standard PRSA with Irish Life which I took out only at the start of this year.  It is invested in the standard Fund(Consensus Fund S)

Since I took it out my value has dropped over 25%.

I am paying €400 per month into it before tax relief.  Given the current state of the market, should I reduce my payments or freeze this.

I know Pension is for the long haul (I have almost 28 years left on it) but to be honest I am sorry I took the thing out now instead of just sticking my money in the Bank.  Only good thing has been that I get the tax relief, I suppose.


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## raydar0608 (14 Oct 2008)

Hi,
 I too am paying 400 euro per month into an RAC. I work in IT and to be honest I dont think I will ever retire, as studies show when you retire, your life expentancy reduces. So whats the point in having a pension??

Should I reduce the amount payed in?


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## carpedeum (14 Oct 2008)

I have a similar Irish Life PRSA policy to MandaC and am also questioning the point of continuing. 

Perhaps someone can answer this question which might allay our worries: is it true that more investment units are bought with a monthly contribution at present since the value of the fund has dropped as I assume have the unit prices and, therefore, we would have more units than had the values remained high?


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## johnnygman (14 Oct 2008)

carpedeum said:


> I have a similar Irish Life PRSA policy to MandaC and am also questioning the point of continuing.
> 
> Perhaps someone can answer this question which might allay our worries: is it true that more investment units are bought with a monthly contribution at present since the value of the fund has dropped as I assume have the unit prices and, therefore, we would have more units than had the values remained high?


 
The Unit price would naturally be lower given the large falls in the underlying assets at this time and yes you would be able to buy more units for =the same contribution amount, given the long term nature of a pension plan it would not be wise to try and time the markets.
It would be advisable to continue with your current funding if affordable given the tax benifits of pension contributions.

As to the person who says they will never retire, that must be one heck of a job where can i get one of those?


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## DerKaiser (14 Oct 2008)

MandaC said:


> I have a standard PRSA with Irish Life which I took out only at the start of this year. It is invested in the standard Fund(Consensus Fund S)
> 
> Since I took it out my value has dropped over 25%.
> 
> ...


 
Personally I think you'll drive yourself mad worrying about the value of your pension now. You have 28 years to go, stock market performances this year will have a negligible impact on your final proceeds compared to what happens say in the final 5 to 10 years i.e. the 2030s!

Sounds like you don't have much appetite for risk, better to find that out early.  You can redirect all future premiums into a more secure fund, something that invests in cash or, more appropriately, government bonds.  This way you'll have plenty of security and benefit from the tax relief also.


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## therock (14 Oct 2008)

Well stock markets have been running at record highs in recent years, and a lot of those highs were on the back of bank stocks.

Bank stocks are now on the decline and the question is will they rise to the same level in the future. The fundamental point is, are bank stocks a sound investment going forward. Do we all know the full extent of the sub prime crisis? Are all the banks safe here and abroad?

If you believe that the banks are safe (and remember the rest of the economy and companies quoted on the stock market depend on the banks), then by all means stick with the stock market.

If however you believe that the stock market reached historic highs recently and for the next few years couldn't possibly reach those highs again and that we saw the top of the cycle in terms of faith in banking stocks, then I don't think a stock market invested pension is the way forward.

International economies are contracting: Ireland, Britain, the US and others. The markets usually reflect optimism or pessimism. If economies are contracting, naturally there is going to be pessimism. The longer it continues, the deeper ingrained the pessimism becomes and the more unlikely rallies are. My feeling is that economies will keep contracting until they hit some kind of bottom and then turn around and not before. And pessimism will have to work its way out of the system.

The truth is none of us know going forward if all the problems with sub prime and all that is in the past or if there is more to come. I mean just how long can governments keep funding banks especially in the US which are essentially bankrupt?

So individuals have to make their own personal judgements on whether having their pension stuck in the stock market is the right thing to do, and not just listen to the advice of vested interests who will tell you to let them invest your pension in the stock market, because it hasn't failed in the fast. 

Personally, for what it's worth, I think bank shares were overinflated much like the .com bubble shares were over inflated, and the bank share prices were high because a lot of people who invested in them weren't in the know about their exposure to sub prime. So if you have confidence in the banks, invest in the market, if not, you probably shouldn't. 

PS I am not a vested interest!


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## johnnygman (15 Oct 2008)

[Personally, for what it's worth, I think bank shares were overinflated much like the .com bubble shares were over inflated, and the bank share prices were high because a lot of people who invested in them weren't in the know about their exposure to sub prime. So if you have confidence in the banks, invest in the market, if not, you probably shouldn't. 

PS I am not a vested interest![/quote]

Luckily its not worth much, if only great minds like yours were around in the banking commumity maybe this global crisis would have been averted all would be rosy in the banking sector 

If you are concerned about market performance switch to a cash fund with no risk on your investment performance (again not advisable for someone investing long term), it makes no sense to stop your contributions if you are a high rate tax payer, surely anyone can see the benefit in that.....


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## shaking (15 Oct 2008)

MandaC might make you feel a bit better:
Assuming you took your PRSA out at the start of January and have paid €400 in a month you've invested €4,000 so far. If that's lost 25% your fund should be worth somewhere around €3,000. If you're on the lower tax rate you've actually paid in €2,960 (Tax relief 20% & PRSI relief 6%) if you're on the higher rate you've paid in €2,120 (Tax relief 41% & PRSI relief 6%) . So either way you've made money 

As Derkaiser says you have a long way to go retirement and will worry no end if you keep checking your values. These things come in cycles, if you are risk adverse redirect your funds to a low risk fund. Otherwise you need to think of the upside which is you're getting more units for your money now then you did at the start of the year.


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## MandaC (15 Oct 2008)

No its actually worse - I pay €333 per month - but what is cheesing me off is that I paid a lump sum of €5,000 bonus through work (whereby I had an option of taking this another way and would have got the value of the full €5k) so out of that €5K I thrown away a quarter of this ie, €1,250.  My fund is actually down approx €2,500 since February.

I phoned Irish Life and I can either down or suspend the payments or switch to a cash funds.

My poor boss is up for retirement this year and his fund has literally evaporated before his eyes.  I know the funds can rise and fall, but what if there was another financial meltdown like this one in the year I am due to retire?  

Have discovered I dont like these risks and will stick with the Bank from now on I think.


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## therock (15 Oct 2008)

johnnygman said:


> [Personally, for what it's worth, I think bank shares were overinflated much like the .com bubble shares were over inflated, and the bank share prices were high because a lot of people who invested in them weren't in the know about their exposure to sub prime. So if you have confidence in the banks, invest in the market, if not, you probably shouldn't.
> 
> PS I am not a vested interest!


 
Luckily its not worth much, if only great minds like yours were around in the banking commumity maybe this global crisis would have been averted all would be rosy in the banking sector 

If you are concerned about market performance switch to a cash fund with no risk on your investment performance (again not advisable for someone investing long term), it makes no sense to stop your contributions if you are a high rate tax payer, surely anyone can see the benefit in that..... [/quote]

Ah sounds like you want to get into a personal slagging match re your opinion vs my opinion.

Question, are you a vested interest, ie, what is your profession? If you are in the business of selling pensions then personally I wouldn't even listen to what you have to say because you are not neutral. 

Ok so the stock market crashes and your invested pension disappears overnight leaving you with nothing to live on in retirement...but you have the advantage of a few thousand a year now in tax rebates. Really, do you think that's the way to go.

If your pension was worth 400,000 last year, it's worth 300,000 this year. If it's worth 300,000 this year, if things continue, it will be worth 255,000 next year. And the year after that it will be worth 165,000. I don't think tax rebates will make up for those kinds of losses and encouraging people to stick with stock market invested PRSAs is irresponsible until the subprime mess is sorted. 

My point is PRSAs invested in the stock market are not safe, is that ok?


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## LDFerguson (15 Oct 2008)

I am a broker and among lots of other things, I arrange pensions for people. But let's get something abundantly clear - there are some excellent deals out there (e.g. ECB + 1% with no DIRT tax) for pension funds that are simply placed on deposit. So you can get your tax relief but your money is on deposit with an Irish bank and the deposit is guaranteed by the Government like any other. It doesn't make a blind bit of difference to me whether someone goes into a deposit fund or a stock-market / equity based fund, so my advice isn't coloured by such interests. 

In my capacity as a self-employed person, I have just made my annual contribution to my own pension fund. Over 75% of it is invested in equities - I increased the equity content this year over last. Why? Because stock markets are cyclical in nature. The reasons change as to why stock market crashes occur. Investor behaviour and the end result stays the same.

The herd mentality of investing goes something like this: (1) Stock markets go up for a few years running. (2) People listen to others who invested from near the start of the bull run and feel they missed out. They invest. (3) The increased demand for shares as more people jump on the bandwagon starts pushing prices out of the realms of actual valuation and into the realms of supply & demand, i.e. speculation. (4) This continues for a while, causing a bubble. "Commentators" come up with explanations as to how things can continue to rise inexorably. (5) The bubble bursts and those who got in last fall furthest. (6) Negative sentiment takes over and the "commentators" come up with explanations as to how things may take forever to recover. (7) Lots of people get scared and sell up, for fear of losing money. This causes things to spiral downwards, far below true valuation. (8) The underlying problem that caused the bubble to burst gets sorted. (9) Experienced investors have been investing since (5) and continue to do so. The majority are still too scared. (10) Share prices return to realistic levels. (11) Go back to (1). 

The smart money is not made by attempting to time the markets or by jumping into a fund which has just had three or four good years.  

In an 82-year period, from the start of 1926 to the end of 2007, the S&P 500 index went up in 59 calendar years and down in 23 years. So, in more than one in four years, anyone tracking this index would have seen negative returns.

Yet in that 82-year period, the index rose by an average of more than 10.3 per cent per year. In other words, despite 23 negative years, the average after 82 years was still strongly positive - an overall increase of 300,000 per cent. Inflation over the same 82-year period averaged just over 3 per cent per year, so the real return was well ahead of inflation. 

The current downturn is just another in a long line. I've no idea how long it will take to recover. But I'm confident that it will.


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## johnnygman (16 Oct 2008)

therock said:


> Luckily its not worth much, if only great minds like yours were around in the banking commumity maybe this global crisis would have been averted all would be rosy in the banking sector
> 
> If you are concerned about market performance switch to a cash fund with no risk on your investment performance (again not advisable for someone investing long term), it makes no sense to stop your contributions if you are a high rate tax payer, surely anyone can see the benefit in that.....


 
Ah sounds like you want to get into a personal slagging match re your opinion vs my opinion.

Question, are you a vested interest, ie, what is your profession? If you are in the business of selling pensions then personally I wouldn't even listen to what you have to say because you are not neutral. 

Ok so the stock market crashes and your invested pension disappears overnight leaving you with nothing to live on in retirement...but you have the advantage of a few thousand a year now in tax rebates. Really, do you think that's the way to go.

If your pension was worth 400,000 last year, it's worth 300,000 this year. If it's worth 300,000 this year, if things continue, it will be worth 255,000 next year. And the year after that it will be worth 165,000. I don't think tax rebates will make up for those kinds of losses and encouraging people to stick with stock market invested PRSAs is irresponsible until the subprime mess is sorted. 

My point is PRSAs invested in the stock market are not safe, is that ok?[/quote]


What part cash & depposit based funds didnt you understand, i thought i made that point earlier, a person doing a PRSA does not have to invest in the markets if they are concerned about risk, although as LDferguson points out this is the correct strategy over the long term, By the way i am an accountant and a QFA for what it's worth, i do believe in pensions for people over the long term. I think the problem here is fear and lack of knowledge, no one wants to see people lose money, but you have to put it into context over the long term.
Your comment re losing 41% etc are not benificial to anyone trying to decide on a strategy to fund for retirement.
I do not want a slagging match my friend your entitled to your opionion of course


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## elcato (16 Oct 2008)

> No its actually worse - I pay €333 per month - but what is cheesing me off is that I paid a lump sum of €5,000 bonus through work (whereby I had an option of taking this another way and would have got the value of the full €5k) so out of that €5K I thrown away a quarter of this ie, €1,250. My fund is actually down approx €2,500 since February.


That 5k was tax free so depending on what tax bracket you were on you gained 1k or 2.2k straight away so you haven't 'thrown away' €1,250 as such. Of course in a years time you could be saying that it's worth 10k now. That's the nature of the beast.


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## therock (16 Oct 2008)

johnnygman said:


> What part cash & depposit based funds didnt you understand, i thought i made that point earlier, a person doing a PRSA does not have to invest in the markets if they are concerned about risk, although as LDferguson points out this is the correct strategy over the long term, By the way i am an accountant and a QFA for what it's worth, i do believe in pensions for people over the long term. I think the problem here is fear and lack of knowledge, no one wants to see people lose money, but you have to put it into context over the long term.
> Your comment re losing 41% etc are not benificial to anyone trying to decide on a strategy to fund for retirement.
> I do not want a slagging match my friend your entitled to your opionion of course



It is the correct strategy in the long term, but an improvement on that strategy is to suspend your payments until the market hits rock bottom...the general consensus among the 'experts' here and in the US (following the news helps!) is that we are in a period of great uncertainty similar to 1929. So now is not the time to put your eggs into the stock market, through a PRSA or anything else. 

Most people who put into a PRSA don't feel they have the nessecary knowledge to decide if the stock market is the place to invest it, and usually their fund manager, basing their decision on years of experience decides on the stock market. That's fine when everything is stable. Everything is not stable now and many people unfortunately have lost a lot of money in their pensions.

Pension Fund Managers make mistakes too you know. 

I agree eveyone is entitled to their opinion. And like I say people should make up their own minds...I don't tell people they are dumb for having one opinion or another. Anyways I won't be keeping up this discussion, as I doubt either of us will persuade the other.


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## sanne (16 Oct 2008)

**Suspending contributions to a pension plan at this time is a terrible idea**

Based on the simple fundamentals of "buy low - sell high" the contributions you made in the last year are poised to do just fine between now and your planned retirement date.   You see, every time you make a payroll contribution you are reducing the average cost of the shares you originally purchased when the market was falling.  If you stop contributing now you wont be able to take advantages of the opportunity to buy these shares at the lower prices they are now available.   When the market does recover (which we all know may take many years) the shares purchased at the lower price will offset any loss you made by purchasing at the higher price.  

Off course it is really heartbreaking to see you balance dwindle particularly when we all work so hard to make those pension contributions - the fact is by investing in a low interest bearing bank account (or safe pension fund) as  suggested above will not leave you with enough money to retire.  

Stick with your contributions, or if you have the extra cash increase your contributions while you have the chance to buy shares at these discount prices.


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## Compass (16 Oct 2008)

shaking said:


> If you're on the lower tax rate you've actually paid in €2,960 (Tax relief 20% & PRSI relief 6%) if you're on the higher rate you've paid in €2,120 (Tax relief 41% & PRSI relief 6%) . So either way you've made money


 
I'm never sure about that logic. Surely the tax relief attached to pension contributions is just tax deferred. You don't pay tax on it now but you will when you come to draw down the pension - so the only advantage is that you might be paying then at the lower rate. Surely the tax advantage on the whole is only the difference at most between the lower and higher rates at best?


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## askalot (16 Oct 2008)

Personally I will keep up my pension contributions, the deciding factor being tax relief. Having said that, I have twenty years to go before retirement and would not be as certain as some posters about the returns I will see. The latest crash will see the introduction of much needed new regulation which may have the impact of slowing growth in the financial sector, property and consumer spending; the areas that drove recent stock market growth. 

Even taking historical figures as some rough guide of where we might be headed doesn't offer too much cheer. Have a look here at an analysis of The Great Depression and Dow Jones Industrial Average :

[broken link removed]

A key point is:
'Stock prices recovered from 1942-1966. They didn't return to their 1929 high until 1954'.

I've looked for but could not find a figure for the average return for a pension taken out in 1925 and maturing in 1955 but maybe somebody has the figure to hand.


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## MandaC (16 Oct 2008)

elcato said:


> That 5k was tax free so depending on what tax bracket you were on you gained 1k or 2.2k straight away so you haven't 'thrown away' €1,250 as such. Of course in a years time you could be saying that it's worth 10k now. That's the nature of the beast.



I had an option of taking €5K *cash *(no tax) or paying €5k into pension.  By paying the €5K into pension I lost out on a quarter of my payment due to fall in the market in 10 months whereby it would have been better for me to pay the full €5k cash off my mortgage in January.

Looking at the Budget yesterday, what is the point in paying money into your pension now, when you would probably be better off being on social welfare and taking the benefit of medical card or being slightly over the limit because of a private pension you have saved for for years and having to pay for your own medical card out of it.


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## Bronte (17 Oct 2008)

MandaC said:


> My poor boss is up for retirement this year and his fund has literally evaporated before his eyes. I know the funds can rise and fall, but what if there was another financial meltdown like this one in the year I am due to retire?


In my opinion you have your answer right there.  

People who sell pensions never talk about this.  (except LD who once did when I mentioned this aspect of pensions)


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## LDFerguson (17 Oct 2008)

Compass said:


> I'm never sure about that logic. Surely the tax relief attached to pension contributions is just tax deferred. You don't pay tax on it now but you will when you come to draw down the pension - so the only advantage is that you might be paying then at the lower rate. Surely the tax advantage on the whole is only the difference at most between the lower and higher rates at best?


 
In practice, may people will be tax exempt in retirement.  A 65-year old married couple can receive income up to €40,000 per year and pay no tax whatsoever.  Many people will be in this bracket.  

If your pension income will be greater than the tax exemption threshold, at least 25% of your pension fund will be tax-free.  So you'll only pay tax on the balance.  So if you're in the 20% band, the effective rate is really 15% or less, as you'll still have all your tax credits, including an extra one for being over 65.  

Even if you're lucky enough to have a sizeable pension that will bring you into the 41% rate, only some of it will be taxed at 41% - usual banding applies.  

Then there's the fact that investments within a pension fund are themselves exempt from DIRT tax, CGT and Exit Tax, all of which have been increased in the last Budget.


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## LDFerguson (17 Oct 2008)

MandaC said:


> My poor boss is up for retirement this year and his fund has literally evaporated before his eyes. I know the funds can rise and fall, but what if there was another financial meltdown like this one in the year I am due to retire?


 
I've said it before - I do have sympathy for anyone who finds them in this position as they may have to realise a paper loss or defer retirement, neither of which is a pleasant prospect.  But if they do, it's clear that they didn't get good advice.  

Two relevant points: - 


Basic "Pensions 101" advice is that you should adopt a more aggressive strategy for growth in the early years of your pension funding...*and you should review your pension fund 5 to 10 years before you plan to retire with a view to switching into cash or bonds or some other low-risk asset class.*
If your boss is eligible to invest his pension into an Approved Retirement Fund, he can simply invest in a comparable fund and thus avoid crystallising his paper losses, except in respect of his tax-free lump sum.


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## MandaC (17 Oct 2008)

In fairness, I don't think it was down to bad advice.  He started pension very late, due to financial circumstances earlier on in life and was playing catch up, to a large extent.  Knew the risks and needed to go with a "higher risk strategy" to build the fund and unfortunately did not pay off.  Because of failing health, needs to retire but pension is very poor at the moment. He has accepted the position with a "dem's the breaks" attitude but I know if I were in that position, I would be going mad.

Looking at it in more depth, I really think I have a very conservative attitude to risk and am not prepared to lose any of my savings in years to come.  I am already going mad over losing a quarter of €5k instead of getting the benefit of paying €5K off my mortgage, so I am probably not the best person to gamble on a pension.


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## DerKaiser (17 Oct 2008)

MandaC said:


> In fairness, I don't think it was down to bad advice. He started pension very late, due to financial circumstances earlier on in life and was playing catch up, to a large extent. Knew the risks and needed to go with a "higher risk strategy" to build the fund and unfortunately did not pay off. Because of failing health, needs to retire but pension is very poor at the moment. He has accepted the position with a "dem's the breaks" attitude but I know if I were in that position, I would be going mad.


 
That's like saying I needed €100k but only had €50k so I'd no option but to play roulette


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## DerKaiser (17 Oct 2008)

MandaC said:


> Looking at it in more depth, I really think I have a very conservative attitude to risk and am not prepared to lose any of my savings in years to come. I am already going mad over losing a quarter of €5k instead of getting the benefit of paying €5K off my mortgage, so I am probably not the best person to gamble on a pension.


 
Once again, many pension providers offer products where your money is effectively in a bank deposit and you get the tax benefit.  By all means give up on the stock market if you're risk averse but that does not mean you have to give up on pensions


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## MandaC (17 Oct 2008)

DerKaiser said:


> That's like saying I needed €100k but only had €50k so I'd no option but to play roulette



No, more like saying I need more than €500K, so I will pay that much hoping for more but get back €300K 

I just could not afford that kind of hit.

Also brings me back to what I was thinking earlier - very difficult to predict the market - if the market were to crash in or around the time I was either (a) due to retire or (b) due to transfer the fund to a less risky one, then I would be in a position similar to people due to retire around now.


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## johnnygman (17 Oct 2008)

DerKaiser said:


> Once again, many pension providers offer products where your money is effectively in a bank deposit and you get the tax benefit. By all means give up on the stock market if you're risk averse but that does not mean you have to give up on pensions


 
Majority of pension fund out there actually switch over automatically into bonds and cash in the years coming up to retirement for security.
If your fund is not one of these lifestyled switching funds then you would have have to make this switch  manually yourself to protect your investment by written instruction.


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## LDFerguson (18 Oct 2008)

MandaC said:


> I am already going mad over losing a quarter of €5k instead of getting the benefit of paying €5K off my mortgage, so I am probably not the best person to gamble on a pension.


 
But you haven't lost anything!  I'm assuming that you're not about to retire and have many years to go yet.  (I have a mental image of you as being 20s or 30s, for some reason.)  Pension funds go up and down.  They've recently gone down.  They will go up again, unless you lose your nerve and switch out now - if you do that you HAVE lost money.


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## LDFerguson (18 Oct 2008)

MandaC said:


> Also brings me back to what I was thinking earlier - very difficult to predict the market - if the market were to crash in or around the time I was either (a) due to retire or (b) due to transfer the fund to a less risky one, then I would be in a position similar to people due to retire around now.


 
You're absolutely correct - it's virtually impossible to time the market.  So you should start considering gradually switching out of volatile assets 6 or 7 years before you plan to retire.  If that happens to be just after a drop, you've still got 6 or 7 years to wait for the recovery.  

Because it's impossible to time the market, you may lose out on the last few years of growth as you may have to watch the funds you were in rising and rising, but you'll have protected yourself from your boss's unfortunate current position.


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## MandaC (19 Oct 2008)

LDFerguson said:


> But you haven't lost anything!  I'm assuming that you're not about to retire and have many years to go yet.  (I have a mental image of you as being 20s or 30s, for some reason.)  Pension funds go up and down.  They've recently gone down.  They will go up again, unless you lose your nerve and switch out now - if you do that you HAVE lost money.



Thanks Liam - I only look 21 and a bit!  I have quite at least 25 years to go to retirement and will just sit back for the moment and see what comes out of the current turmoil.  There is no point in losing my nerve now, given that I only took the thing out in January. It might also be an idea not for me to go online and keep looking at its value either. 

Sound advice thanks.


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## therock (20 Oct 2008)

Just by way of an alternative, if you put an initial 5000 into a savings account with 5% interest(-1% dirt) for 35 years and added 5000 every year you would end up with 402,722.01. 

Calculator here

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Yes it's not spectaculor, but it is safe money and will continue to accrue interest if you leave it in during retirement. Imo it mightn't be your main pension contribution, but something to fall back on if you pension went belly up on the stock market nearing retirement.

I agree that you can choose the option of a low risk savings account when asked by your broker, but I think most people trust that their fund manager knows best where to invest money and where to get the highest if sometimes riskiest return and so leave it to them.


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## sanne (21 Oct 2008)

Nice calculator !  Unfortunately it does not take into account what 400K will be worth in the said timeframe in real terms after inflation.  If history is anything to go by it will not be worth as much as it needs to be in order to retire - so if the saver in question used this method to prepare for retirement they would likely be looking for a part time job (would you like fries with that) around their 70th birthday.


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## DerKaiser (21 Oct 2008)

therock said:


> Just by way of an alternative, if you put an initial 5000 into a savings account with 5% interest(-1% dirt) for 35 years and added 5000 every year you would end up with 402,722.01.
> 
> Calculator here
> 
> ...


 
So if a friend said to you they had a spare €5k they wanted to put away for retirement which of these options would you recommend?

1) invest €8.5k in a pension and reduce your tax bill by €3.5k, choosing a deposit type fund with no dirt tax payable
2) Put €5k into a deposit account


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## Bronte (22 Oct 2008)

DerKaiser said:


> So if a friend said to you they had a spare €5k they wanted to put away for retirement which of these options would you recommend?
> 
> 1) invest €8.5k in a pension and reduce your tax bill by €3.5k, choosing a deposit type fund with no dirt tax payable
> 2) Put €5k into a deposit account


 
I could answer that if you could tell me the value of 1 at retirement and using the rocks figure for 2 in the same period.


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## DerKaiser (22 Oct 2008)

Bronte said:


> I could answer that if you could tell me the value of 1 at retirement and using the rocks figure for 2 in the same period.


well €8.5k p.a. getting tax free interest over 35 years will amount to more than €5k p.a. getting taxed interest over 35 years.
Using 5% interest, 23% dirt tax and a 1% management charge on the pension (though it will be far less for a cash fund):
Pensions comes to €651k
Deposit comes to €371k
The pension proceeds are 75% higher ignoring any tax in retirement.
Of course with the pension you'll be subject to income tax on the proceeds (though you can generally take up to 25% tax free)
Even for someone paying marginal tax at 41% in retirement the pension proceed should still be over 20% higher.
For a pensioner paying the standard rate of tax (20%) the pension will be almost 50% higher.


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## Bronte (22 Oct 2008)

DerKaiser said:


> Even for someone paying marginal tax at 41% in retirement the pension proceed should still be over 20% higher.
> For a pensioner paying the standard rate of tax (20%) the pension will be almost 50% higher.


 
You should explain those figures to MandaC's boss.  It doesn't appear to have worked out that way for him.  
I'm not against pensions and I think people need them, I just think people need to understand the negatives as well as the positives.


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## DerKaiser (22 Oct 2008)

Here's my explanation for MandaC's boss in relation to my figures:

I'M COMPARING A DEPOSIT TYPE PENSION FUND TO A NON-PENSION BANK DEPOSIT

PENSION DOES NOT EQUAL EQUITY BASED FUND


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## askalot (22 Oct 2008)

Bronte said:


> You should explain those figures to MandaC's boss.  It doesn't appear to have worked out that way for him.
> I'm not against pensions and I think people need them, I just think people need to understand the negatives as well as the positives.




But isn't the point that MandaC's boss wasn't invested in a deposit type fund and so was hit by the drop in equities.

(sorry crossed with DerKaiser)


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## therock (23 Oct 2008)

sanne said:


> Nice calculator !  Unfortunately it does not take into account what 400K will be worth in the said timeframe in real terms after inflation.  If history is anything to go by it will not be worth as much as it needs to be in order to retire - so if the saver in question used this method to prepare for retirement they would likely be looking for a part time job (would you like fries with that) around their 70th birthday.



yes agreed re inflation....lets assume inflation averaged out at the rate of interest, ie 4%

we would then be talking of 35 years times 5 = 185,000...

I did make the point that it mightnt be any good as your main pension, and that you might be wise to keep a main pension, but as a just in case fund, it might be no harm...ie in case your pension loses for example 50% of its value on the markets five years before your retirement a scenario many people are now experiencing. 

Bricks and mortar might also be an option for those who are risk averse...since, over the course of 35 years, you are bound to hit a period when property prices are at a high. Again this would be a fall back in case your main pension hit trouble.


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## johnnygman (23 Oct 2008)

therock said:


> yes agreed re inflation....lets assume inflation averaged out at the rate of interest, ie 4%
> 
> we would then be talking of 35 years times 5 = 185,000...
> 
> ...


 
Would you not agree given the tax advantages on  pension funds that it would be wiser to perhaps take out several different pension funds, different assets etc.. as opposed to ordinary savings account if risk is your main worry, again deposit funds and Lifestyle funds take away these concerns for me, but you seem to be fixated on the possibility of all funds crashing out before retirement.
Property is not a liquid asset given the tax treatment and the blind luck trying to chose a time to sell to match your retirment age this would prove to be much riskier option in my mind, as you may appreciate many people are experiencing today!!


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## therock (23 Oct 2008)

johnnygman said:


> Would you not agree given the tax advantages on  pension funds that it would be wiser to perhaps take out several different pension funds, different assets etc.. as opposed to ordinary savings account if risk is your main worry, again deposit funds and Lifestyle funds take away these concerns for me, but you seem to be fixated on the possibility of all funds crashing out before retirement.
> Property is not a liquid asset given the tax treatment and the blind luck trying to chose a time to sell to match your retirment age this would prove to be much riskier option in my mind, as you may appreciate many people are experiencing today!!



I agree that the tax incentives are helpful yes and people should have a pension with the tax incentives coming in...

I am just saying that people should avoid putting all their money into one basket in case something happens to that basket.

It's good to have a spread of investments (including a pension/PRSA) to cover all bases...Personally while I am in a company pension scheme which I assume is doing ok, I wouldn't like to be watching my PRSA go down by the day.

Don't get me wrong I am not scaring people away from pensions, I am scaring them away somewhat from the high and medium risk options which are invested in stocks. They should choose in the current climate low risk/low return options, because these won't go down so much or as fast.

When the banking crisis settles down, then change back to the medium risk option. 

Someone for example who had 100,000 in their pension a year ago might be looking at it being 70,000 today. When it picks up again assuming normal returns of 10% it will take them a few years to get backs to where they were...which means a few years lost.

so just to reiterate, yes a pension is good, and the tax rebates are good, but don't choose a medium or high risk investment profile at the moment.


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## Fanny (23 Oct 2008)

I have diverse PRSAs with IL&P, most in the consensus fund. How secure are those funds with IL&P? Can I move them into a more future-oriented pension fund which is e.g. based on sustainable energy? Is there such a PRSA? 

What happens if IL&P goes bust? All the companies I worked for only offered PRSAs via IL&P, the companies were tied by agreements. If I decide to move all my PRSAs into PRSA deposit schemes, who can I ask to do that without paying another fee. Does IL&P offer a PRSA deposit scheme? If not who?

I invested part of my SSIA into one of my IL&P company PRSAs, which I regret now because the funds were heavily invested in banks, and the funds have dropped immensely in the meantime. I am aware that you cannot time the market and you have to see how it develops over the long term, however, I would have preferred a better choice of where to invest my PRSA and more transparent information.

Some countries offer a guarantee that the investor gets out at least the amount he/she puts in to a stakeholder pension, but I don't think the Irish (PRSA) scheme comes with a security like this, or does it? Would I receive any money back if the fund went bust?

Fanny


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