Q – My new employer ahead of pension auto-enrolment in the last quarter of next year, is forcing our workforce this month to pay 5% into our defined contribution pensions which he will match. I am only 26 – do I have to agree to this or can I put it off until the new regulations come into force ? I really cannot afford it – my income is € 32,000 per annum ..Mary – Galway
A –Thanks Mary but you will be making a contribution anyway even with the auto-enrolment next September ( talk of only 1.5% of salary ) but bearing in mind we are an ageing demographic and that within 25 years, there is a chance the State Pension (which is currently € 289.30 per week from next January) will be abolished as the government of that day will not be able to afford them given that there will be 3 times those retiring and only 1/3rd of today’s workforce then to fund the payments ! I would recommend you agree to the pension, even at 20% tax relief, the full 10% contribution ( 5% from you and 5% from the employer ) is only costing you a net 4% of your income. To maximise your tax relief on the 15% of your annual income you are allowed to invest into a pension, you could invest a further 10% or € 266.66 per month, net € 213.33 if you could afford it ! It is the best investment in Ireland currently. Make sure you ask for a report each year from the trustees to ensure the fund is on course to pay you what the original estimates hope to pay.
Quite simply put, a pension is a must. It is a savings plan which attracts three specific tax breaks:
- Tax relief at your marginal rate on the contribution that you make to your pension
- Tax free growth in the pension fund profits.
- The availability of a tax free lump sum, currently 25% of the fund, on retirement age with a cap of € 200,000
Independent, authorised and experienced advice is essential and it would be preferable to pay for it to ensure independence. Do it !