If you have not yet reached 30, your retirement might seem a long way off, but it will come round quicker than you think. Suddenly your income will drop from what you have been earning to the amount of a state pension, which currently stands at approx. 1000 euros a month. This is said to be about one third of most people’s income. It can be a big shock to find you only have a fraction of the money you’ve had for the years of your working life. You can help to prevent this shock happening to you by starting to invest in a private pension.
A private pension can financially secure your retirement years making sure you have adequate income to enjoy them. When you want to take more holidays, start a new hobby, or maybe move to another part of the country, it could be the lump sum from your pension pot that gives you the funds to follow your dreams.
If you were born after 1961 you will not qualify for a state pension until you are 68. You might not want to work that long and a private pension has the advantage of letting you retire earlier, as young as 60 if you want, providing the financial security you need to do so. Then when your state pension does start, it’s an extra bonus.
Are You Eligible For A Private Pension?
Not everyone can start a private pension, there are rules your situation has to fit into to. For instance, if you’re employed in a job that pays into a pension, you cannot pay into a private pension. However, if you are self employed or in non-pensionable employment then they can provide the perfect answer for financial security in your retirement.
If you are paying into a personal pension and your circumstances change, the money you have already invested will not be lost, and it will continue to grow. There is no need to be worried if you change your job and the new one has a pension as part of your employment package.
Rules Relating To A Private Pension
The rules and regulations surrounding a private pension are complex, but just a few of them are:
- There is a maximum amount you can have in your pension pot of 2 million euros.
- There are rules relating to how much you can invest each year, but these depend on your age and your level of income. The older you are the more you can invest each year, but left too late, this still might not be enough.
- The most you can take from your pension pot, as a tax-free lump sum at retirement, is 200,000 euros.
- You can take an extra 300,000 euros at a reduced amount of tax of 20%, which can represent quite a tax saving, particularly if you are a higher rate taxpayer.
Advantages Of A Private Pension
Apart from the obvious advantage of securing your retirement, there are other advantages to a private pension plan. For instance, you can claim tax relief at your marginal rate on your contributions. Your pension fund grows free of any tax, and for some it is like an insurance policy as the funds can be left to a spouse or children. This can be particularly helpful if you have had past health problems that stop you getting life insurance at a reasonable cost. Any life insurance attached to the pension attracts the same level of tax relief.
Starting Sooner Rather Than Later
From the very first year your pension contributions will make money. In the second year you have the contributions you make, plus the contributions and profits from the first year making money. These profits keep compounding so you can imagine after 30 years how much your first year contributions will be worth.
This is why it’s betting to start contributing into your pension scheme sooner rather than later. Starting to invest for your retirement in your 20s, for instance, will need less of a monthly commitment than starting in your 50s. The monthly compounded profits can make a big difference to your pension pot, and all of the growth is free of tax.
Fees For Administering Your Pension
Pension providers charge a fee to administer your pension fund, as they have overheads just like any other business. The charges can vary a great deal, but are usually a very small percentage of your fund. Some will also charge a fee for setting the pension plan up as well. Before you sign into a pension plan you need to find out what the fees and charges are. With some you will pay as little as 0.02% where others will want a full 1%.
This does not necessarily mean you should choose the company with the lowest charges, as the one that charges more could be a better performing fund.
This all gets very complicated for the layperson, which is why you should seek the help of professionals to discuss your financial planning for retirement.
Finding Pension Advisors You Can Trust
You need to be able to trust the company helping you with your retirement planning, which is why so many people turn to Mason Wealth Management. With over 20 years experience in the industry, we have helped numerous clients to become financially ready for the day they finish working.
Working in an industry where the rules and regulations are forever changing presents its challenges, but we meet them head on and you can rest assured that any advice we give you will be relevant and up to date.
When you are thinking about your retirement give us a call and have a chat to one of our experts. We work with people from all walks of life, and are happy to help no matter how little or much you can afford to invest each month. Why not call us today on 01 969 5786, we are confident you will not regret it.