The Do’s and Dont’s of Pension Planning

In a few weeks’ time, the controversial pension levy – which is estimated to have taken €2bn from the pockets of those paying into private pensions over the last four years – will be slashed from 0.75pc to 0.15pc. This is good news for anyone with a private pension as it means that less money will be coming out of their pension to fund the levy. That levy will be phased out completely in 2016.
Although the phasing out of the levy is one less worry for those paying into a pension, it is important to do what you can to boost the value of your pension when you retire.

Here are some vital pension do’s and don’ts.

The Do’s:

1.  Keep up your PRSI (social insurance) record as much as you can – so that you qualify for the maximum State pension.  To qualify for the maximum State pension, you must have paid a certain amount of social insurance contributions. You typically build up these contributions while working. However, if there are times when you’re not working, you may be able to get PRSI credits or pay voluntary PRSI contributions to keep your contribution record going.

2.  Find out what pension options your employer (if you have one) offers. Although they’re not obliged to, many employers will pay a contribution into your pension on your behalf which, combined with the contribution you’re paying in yourself, can boost the value of your pension.

3.  Start paying into a pension as early as you can. The sooner you start the more you’ll have on retirement. Contribute as much as you can afford to your pension, particularly where your employer matches the contribution you’re paying into your pension.

4.  Keep an eye on charges, particularly the recurring fund charge. You want to keep this ongoing fund charge as low as you can. Passively managed funds, which just follow the market and don’t try to beat it, will usually have much lower charges than so called ‘actively’ managed funds.

5.  Get advice from a professionally qualified adviser. Pensions are complex. Good advice can pay for itself many times over. But find out how your adviser expects to be paid and if he or she is offering independent or restricted advice.

The Don’ts:

1.  Don’t gamble with your pension fund, such as by putting it all into one investment (like a single property). Make sure the money in your pension fund is invested in various types of investments, particularly when you’re younger.

2.   Don’t move your pension pot around a lot between different institutions – chasing the next big investment ‘opportunity’. Every time you move your pot, you’ll probably pay hefty charges.

3.  Don’t be swayed by charts showing a fund’s impressive past investment performance. Funds rarely stay top performers for long and in the long run, there’s plenty of evidence to show that similar funds end up providing more or less the same investment return.

4.   Don’t have unrealistic ideas about when you can afford to retire. Life expectancy is increasing all the time. You should be prepared to continue working (maybe part-time) until you get the State pension, which is now 68 for most of us.

5.  Don’t rely on the State pension or winning the lottery.

Source: Tony Gilhawley is director of Technical Guidance Ltd – Sunday Indo Business