new private pension age 52

I'm 52 years old - started a new job a few months ago and have now been offered to join the pension scheme. Company contribution 12% my contribution 5% - I'm at higher rate of tax.

The thing is:

• I have a public sector early retirement pension already being paid (for which am v thankful)
• I had intended to retire before 55 - not 100% sure though - depends on how this job works out.

So given the above I suppose I should be looking for the most conservative pension plan available - deposit/bond? Anything else?
I have emailed the provider setting out my profile but no response yet. Any advice appreciated especially the implications of leaving this job within 2 years (am I right in thinking I will lose employer contributions) or after 2 years - say year 3 or 4 - can I then take all (mine and their contribs) out immediately or am I limited in what I can take and how?

thanks

In my answers below, I'm assuming that your employer's scheme is an Occupational Pension Scheme. If it's a PRSA, these answers are incorrect.

Given the short time-frame, I'd be recommending a Cash and/or Bond Fund - you won't participate in any recovery in equity markets but the fund is likely to be more secure.

Check out what charges apply to your contributions.

If you leave the scheme within two years the employer has the right to take back their contributions, although they have discretion on this.

If you leave the scheme after two years the value of your own and the company contributions become yours. Maximum tax-free lump sum is a calculation based on number of years' service, salary and fund size. Ask the scheme consultant to do the calculation for your particular circumstances. Anything over the maximum tax free lump sum would be converted to an annuity (guaranteed pension for life) unless you're a shareholding director of the company.

Would your employer consider making contributions to a PRSA instead as it would expand your options at retirement?

I agree with what Liam said.

Another option which may work out for you if you planned to stay less than 2 years would be to maximise your personal contributions to 30% (maximum allowable for your age), 5% into the main scheme and 25% into an AVC. Once you left before 2 years you could then request a refund of contributions from both the main scheme and the AVC scheme. You would lose out on the employer contribution but...

The benefit of this is that you would get tax relief of 41% on the contributions you put in to the plans but on exit you would only pay 20% tax odd, maybe 22% not sure exact % at the moment but you would make a net gain of approx 20%.

Talk to a financial advisor though before going this route to make sure that its feasible for you but I know it is possible under current rules.

Thanks guys - appreciate the ideas - still waiting for advisor to come back. thanks again.

Just looking into this in a little more detail.

If I was to take a PRSA I would choose have it invested in government gilts or on deposit. It looks from the materials that I would have to pay the provider 5% on each contribution and 1% of the annual fund. How can this be right when I could go to the bank and put my money on deposit for no charge (and no risk)?

There is no management taking place as far as I can see. Is there no way I can invest in a pension without paying management charges when all I want is a deposit based strategy?

Hi Putsch

In relation to cash vs gilts/bonds. I would go with the gilts/bonds as you will get a better return for very little risk.

I'll try and give you an explanation for the charges.

The 5% is a bid/offer spread used by pretty much all companies for all unit linked products. Its also part of the standard prsa charging rates, it covers costs related to buying and selling assets in unit linked funds. The 1% charge again is a standard prsa management charge, this covers insurance companies administration costs etc. While it may seem a bit unfair to charge this much compared to a bank account, remember that PRSA's were set up to encourage low earners to join pension schemes, as the contributions were as little as 20 euro a month, companies would lose money offering these plans to customers unless they could make up for this by charging higher earners more, hence why there was a high management charge allowed to make up for the fact that insurance companies could not make a profit on small pension contributors and would have no reason to sell them if the charges were lower.

Some people will no doubt dispute the above but I worked for one of the major insurance companies at the time of PRSA's being launched and there was a big concern that insurance companies wouldnt even bother to offer the products unless they could make money on them. There were lots of costs that the end consumer never see like changing computer systems to deal with PRSA's, compliance, setting up new admin teams etc etc. While you wont get any comfort from this, these are the historical facts behind the charging structure adopted.

Anyway enough of history, in relation to pension vs bank deposit. I have 2 words that sum up why you should go pension.

Tax Relief

As a higher rate tax payer, you will get 41% tax relief on your contributions. I presume that your employer will also deduct the contributions from your wages so you will get relief on PRSI deductions too. When compared to the tax relief you recieve, the 5% bid/offer spread and 1% management charge pale in comparison as no deposit account will ever give you 35% interest.

Pension charges are a high, but the benefits even if a fund has hardly any growth are higher. I'm afraid I've no way for you to get around paying these charges but at least you know that you are getting value for money as the benefits of tax relief far outweigh the costs in your case.

Regards

Stephen

There are PRSAs available with lower charges per contribution than 5%, but generally these come with no advice. Do a search on Askaboutmoney.com for "discount brokers". If you wanted one of these, your employer would have to agree.

Thanks very much for the advice both of you. So the highish (well for cash/gilt products) charges are a sort of community rating? Even though I mightn't like it at least getting an honest evaluation makes it less opaque.

May have more questions as I move slowly to a decision! Thanks again.

Happy to help and yes the highish 1% management charge is kinda like a community rating. But as Liam said, shop around as you may find some online discount brokers that can get you a better deal once your employer agrees that you can shop around rather than just joining the company scheme.