Q – My new employer will pay 5% into my defined contribution pension if I match it. I am only 26 – do I have to agree to this or can I put it off until I am at least in my thirties ? Mary – Limerick

A – There are currently over 677,000 Irish citizens over the age of 66 and by the year 2050, there will be 1.8million citizens over this age – 767,300 by 2026, meaning that 10 years from now more than 16% of the population will be in retirement. Another fact is that half of the current earning population of Ireland does not have a pension. They are obviously hoping that the State Pension (which is currently € 233.30 per week) will be enough to tide them over at that stage AND that the government will still have the funds to be able to pay it when they reach retirement age. With the pension funds being decimated over the last few years and the ageing population ambivalent about saving for their retirement, something has to give. The government through the National Pension Framework hoped to address this issue and were looking for all employees ( 4% ) and employers ( 2% ) to eventually contribute to a pension fund of some sort plus raise the retirement age gradually to age 68 in 2028. This has yet to happen but watch this space. So if you are currently on the higher rate of tax, it will certainly be worth your while making that 5% contribution as your employer is also making a 5% contribution. This is a win-win situation for you while you are never too young to start a 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. 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 achieve.

Quite simply put, a pension is a must. It is a savings plan which attracts three specific tax breaks:

  • Tax relief on the contribution that you make to your pension at your marginal rate
  • Tax free growth in the pension fund
  • 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 that independence. Do it !

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