# Invest more in pension or pull out?



## ThatNewGuy (14 Dec 2015)

I have a question regarding my partner’s pension as the end of year documentation came in and having had a look through it I’m not sure what we should do for the year coming (and longer term).

Background - Last year she started a pension with a view to just "getting it going". Her work has a pensions guy but as far as I can tell he is more of a facilitator and deals with the mechanics of setting it up than an in-house adviser.

We went with a passively managed consensus fund at the time as there was no detailed documentation on funds / fees available to take home and she did not know enough to discuss in detail with the guy.

Now however after looking at her end of year documentation I’m a little concerned – there’s a 4% contribution fee on each payment and a 1% annual management fee, which for a passive consensus fund I think seems extremely high??

In terms of the current details, she is early 30’s (for self-preservation I would not disclose her actual age!), she is a higher tax bracket PAYE employee, the company pays no contribution, and she currently puts in only a small amount of just north of €100 a month. There is no previous pension.

I am unsure of what the best thing for her to do now is.

·  She could increase it by ~200 this year, but between (what I think are) high charges and lack of company contribution, is that enough to make it “worth it”?

·  Is it better to have “something” rather than nothing, even if monthly payments were next to nothing at the time of entitlement?

·  If the money would be better saved and the pension stopped, would she be entitled to retrieving the existing contributions?

· The contributions were made when she was in the lower tax bracket, so would returned contributions (if available) be taxed at 20 or 40%?

Additionally if the pension is actually continued, it is likely if children come along sometime in the next few years that she would have a break in employment & therefore payments, for an unknown period of time.

I know places on this forum argue for pensions only commencing around 40 when you're nearing peak earnings and have other things sorted first, but I treat my own pension with the view of getting in early with maximum contribution to avail of extra compounding time. However I'm stuck in indecision with my partner's pension largely due to the charges, but also because of a lack of company contribution and potential gap in contributions in a couple years - any thoughts would be much appreciated!


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## 44brendan (14 Dec 2015)

ThatNewGuy said:


> for self-preservation I would not disclose her actual age!),


Sorry to be flippant but that made me laugh!! Stephen Barrett appears to be the pension expert on this forum. Hopefully he can give you the advice needed!


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## ThatNewGuy (14 Dec 2015)

44brendan said:


> Sorry to be flippant but that made me laugh!! Stephen Barrett appears to be the pension expert on this forum. Hopefully he can give you the advice needed!



It's nervous laughter on my side!


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## Steven Barrett (15 Dec 2015)

ThatNewGuy, you haven't posted your real name, how could we have any idea of who you are or who your girlfriend is 

Pensions are very expensive. They are savings during work that you are going to live on for 20+ years. If you put €100 a month away for 30 years, growing at 6% per annum, you will have €100,450 at the end. Not enough to live on. 

Charges wise: 

4% contribution charge is the deduction to pay the advisor for setting it up. Under a PRSA structure, he probably got 15% commission i.e. €180 for setting up the policy. Not very much. The insurance company recoup that €180 payment over the years through that 4% deduction. 

The 1% AMC pays the insurance company for light & heat, staff costs and some profit. There are also trading costs which are factored into the unit price and not disclosed. 

You can always do it yourself through labrokers or the like and get 100% allocation and 1% AMC. Or pay an advisor a fee for impartial advice. But at €100 a month, it's probably not cost effective. 

If the plan is to increase premiums over time, stick with it. If €100 is the most she is willing to contribute, I would question how beneficial it will be in the long run. 


Steven
www.bluewaterfp.ie


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## ThatNewGuy (15 Dec 2015)

SBarrett said:


> ThatNewGuy, you haven't posted your real name, how could we have any idea of who you are or who your girlfriend is
> 
> Pensions are very expensive. They are savings during work that you are going to live on for 20+ years. If you put €100 a month away for 30 years, growing at 6% per annum, you will have €100,450 at the end. Not enough to live on.
> 
> ...



Thanks for that. I understand there needs to be cost recuperation and I would have expected 1% on any managed fund really, except either a passive consensus or index fund.

In either case, the question for me is still around at what point does it become "worth" the A) costs associated with saving a pension and B) loss of liquidity due to cash being locked away for someone where there are no employer contributions (currently) helping the investment. 

I guess that is a decision we'll need to make by running some calculations on realistic future contributions and estimating broadly what pot could feasibly be worked up towards in the long run.  

Two questions:

- Do you have a preferred online calculator to use?
- Are there standard contribution retrieval laws (e.g. after 2 years in the scheme she can claim back everything put in)?

Thanks


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## Steven Barrett (15 Dec 2015)

ThatNewGuy said:


> Thanks for that. I understand there needs to be cost recuperation and I would have expected 1% on any managed fund really, except either a passive consensus or index fund.
> 
> Two questions:
> 
> ...



That's because you think that the 1% is to cover the cost of trading, it's not. It's to cover the cost of having an authorised insurance company to provide you with a pension plan. The trading costs are separate and not disclosed. If you had an actively managed fund, the non disclosed trading costs would be higher. 

I don't have a favourable online pension calculator, I have my own financial calculator or I use excel. 
if she is in a personal pension or PRSA, she can't get her money back until retirement. That 2 year rule applies to company schemes.


Steven
www.bluewaterfp.ie


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## ThatNewGuy (15 Dec 2015)

Thanks for that information. I hadn't realised company schemes had different retrieval rules than PRSAs.

In terms of the online calculator, I was more just interested if you thought any of them were better ballpark-ers than others. Best option is probably just to do my own Excel which I can add in missed years etc.

I don't think she'll ever be able to contribute enough to make it a "live-able" pension without employer contributions, but at best it might be possible to get a reasonable supplemental pension.


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## Steven Barrett (16 Dec 2015)

If she can make incremental increases over time, it will have a massive effect on the overall pot at retirement. Increase from €100 this year to €105 next year. 

All the calculators should be the same as they all have to abide by the Society of Actuaries guidelines. 

I suppose the Pensions Authority's one is independent, so I'd use that one. 


Steven
www.bluewaterfp.ie


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## Gerry Canning (16 Dec 2015)

that new guy.
1. as usual Steven gives clear info.
2. It is probable the State Old age pension will always give enough to live on.
3. Any additional fund (even a small one ) will, since basic necessities are covered by Old Age Pension be a welcome bonus.
4. Add back the  present good tax allowances on her pension contributions means the e100 small cost in real terms.
5. Once the habit starts she won,t notice the e 100 .
6. If she index links the e100 = better still.
7. If hard times hit she can reduce /stop contributions , yet still keep her funds (after normally 2 years contributions)

I am a fan of self-pension provision


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## ThatNewGuy (22 Dec 2015)

Thanks both. Plan is to invest more, just in the process of going through funds etc so will have a plan by the new year.


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