Company pension plan

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bossdga

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Hi, I am a 40 years old male, living in Ireland and recently joined a new company. The company offers a pension plan where they will match my 8% contribution.

They offer two different investment strategies:
  • Option 1 - default: it is a ready-made investment strategy which automatically changes my asset mix as I approach retirement. In the end I will have 25% invested in the cash fund and the rest in a Pension fund or a Approved Retirement Fund.

  • Option 2 - I will make my own investment decision by selecting what percentage of my contribution goes to the following funds (Global equity fund, multi asset fund, bond fund and cash fund - must equal 100%). I will have to monitor the performance of the investments and adjust if necessary.
Now I have some questions:
  • What is the best strategy to follow, Option 1 or 2?

  • If I go with option 1, what would be better, a Pension fund or a Approved Retirement Fund?

  • If I go with option 2, which would be the most optimal percentage distribution for those funds?

  • If I move to another country in the EU, will I be able to transfer that pension plan? If I can't, what would I have to do with that money?
Thanks a lot in advance
 
Option 1 is a default strategy whereby the investment risk is gradually reduced as you get closer to retirement. It suggests that you will have a minimum of 25% invested in Cash at retirement so as to fund the retirement lump sum (25% of total fund). The remaining 75% is only then used to provide a pension income (perhaps via an ARF).
Option 2 is where you can decide on the investment mix as you go along. You decide what mix of funds and what level of investment risk you are comfortable with. But I suspect that you can switch to the default route at any time.
It's really down to whether you want to determine the investment strategy (option 2) or leave it all up to the investment manager (option 1). In my opinion, with over 25 years to go to retirement, I would opt for a higher risk strategy (high Equity content) in the earlier years. It makes sense to reduce the investment risk as one gets closer to retirement (say within the final 5 to 7 years).

As regards moving to another EU country, whilst in theory a transfer of assets is possible, in reality - at least at present - this is not so easy. But I suspect this will become easier over time. In any event you can always leave the assets here and draw them down when you do retire.
 
Good advice from Conan.

You need to know the ups and downs of any investment strategy. I am 41 and invested in 100% equity myself. I know if the market tanks, the fund could dip by 40% - 50% but I believe in capital markets and that they will recover. You have a high capacity for loss, that is, will a worst case scenario have a significant effect on your lifestyle? Not with money in a pension as you won't be touching it for 20 years. If it fell by 50% , you'd be annoyed but it won't make a difference to your life and you can give it the time to recover.

Ask your employer if you can talk to a financial advisor about investment strategy.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Thanks guys, pretty good advice.

There is a good chance for me moving to a different country in a couple of years, so maybe I should just do nothing. It is a pitty, as I think is a very good pension plan.

Cheers
 
You may move overseas in the future......or you may not.
Either way I would not turn down the opportunity to accumulate a fund 50% funded by an employer.
If you do move overseas later you will have options in relation to any Irish pension fund.
 
Never say no to free money! It doesn't matter if you leave Ireland or not.
I'm not Irish - I will most likely leave Ireland at some point but I am still a member in the pension scheme of my company.
 
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