Can anyone explain the basics of my pension?

C

colin79ie

Registered User
Messages
369
Hi,

I have been paying into a pension since age 24, now 37. I signed up to the company pension plan as it was the done thing at the time.
However, I realise now I have no clue about pensions and if I am in the right, wrong or otherwise type of pension etc.

I can indicate, from my latest statement from Dec 2015 what it looks like but I have no clue if it looks good, bad or indifferent. Any info is much appreciated and if I should keep going as I have been or do I need to get assistance in improving it etc.

It's a PRSA with Zurich.

My regular contributions are around 6.5k per year between myself and employer. Also in May 2016 I directed a small pay increase into my pension as an AVC which is an additional 130/month.

My statement has the details below:

Current value as of Feb 2016 €83667
Paid in so far €65352
Estimate at retirement in todays money €359871
Estimated income when retired in todays money €14333

Current fund value and fund selection;
Dynamic pension and invest.
Units held 4635 at €18.05 per unit
100% investing in the fund

Default investment strategy: PensionSTAR (ARF). Automatic premium rediretion applies
 
I am no expert on pensions, however the overall point is simple and should never be lost in the detail as sometimes happens with experts.

Whatever part of the €65,352 paid in so far you paid yourself would have gone in large part, (more than half if you are a higher rate taxpayer) to the taxman if you hadn't put it in the pension.

All the rest is detail.
 
Ok, you have put in €65,352 and it's worth €83,667. If you keep on investing as you are until you are 65, that fund will grow to €360,000 (this using a growth assumption. It is certainly not guaranteed!). If it grew at that rate, the pension you would have is €14,333 in today's money (remember, inflation will reduce the value of money. There is no point in them telling you that you'll get a pension of €30,000 because you'll think of what €30,000 will get you today, not at age 65. The pension at 65 will have the same spending power of €14,000 today...again, using assumptions).

Funds:
The Dynamic fund is invested in stocks and shares around the world. It will go up and down in value as the global stock market does. PensionSTAR is a method of reducing your investment risk as you get older. You will stop investing in the Dynamic fund and future contributions will go into the Performance Fund, which is the same stocks and shares are the Dynamic fund but they also have an element of bonds. At a later date, future contributions will start going into the Balanced fund which has even more bonds. The money you have already accumulated in the Dynamic and Performance funds will slowly start switching over to the Balanced fund.

Units: When you invest in your pension, your money is pooled with lots of other policyholders and they invest the money. Instead of saying you get Microsoft and I get Apple, they put all the shares together and you buy units, which contains all the shares they buy. Those value of those units goes up and down based on how the companies held within the fund does. If markets go up, the value of the units you have goes up. But your monthly premium will buy less of them. If markets goes down, the value of your holding goes down but you can buy more units for your premium as they are now cheaper.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 

Even ignoring your AVCs and assuming your retirement age is 65, it looks like they are only estimating fund growth at 1% above the rate of inflation, and earnings increases at the same rate. I wish my pension company had been that pessimistic!
 
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