Avoid cramming a lifetime of saving into a few years
Review For Ahead: Existing These You Are Goals Planning Align You Your Retirement Might And Plans Working Already, With Place In Pots Pension Any Them Ensure Have
, of CWM Wealth Management, explains three attractive tax breaks that make a pension investment the best choice you'll ever make.
Pension Planning is a 40-year problem that most people try and solve in the last 15 years of their working lives.
While it is never too late to get started with a pension, ultimately, the earlier you can start saving, the better off you will be as it will lessen the financial burden of starting it later in life.
The current Contributory State Pension, if you are entitled to it, stands at just over €12,900 per annum, which for many would mean a significant drop off in income on retirement. While the state pension amount is unlikely to drop in the future, it may not always increase to keep pace with inflation and one thing we can be more certain of is that the age at which you become eligible for the state pension will change from 66 where it is currently, being pushed out to age 68 before most of us will become eligible for it. Put simply, if you wish to retire from age 65 or earlier, the need for adequate private pension provisions becomes an absolute necessity.
Getting a plan in place for the retirement you want needs to become a priority. Be sure to seek independent financial advice to help identify the income you wish to achieve in retirement and put together a realistic plan to achieve this goal.
Review any existing pension pots you might have in place already, ensure these plans are working for you and align with your retirement goals,
A recent publication by Zurich Life suggests that a pension started from age 25 over a 40-year period, would generate a 51% greater return than the person starting 10 years later and a 157% greater return than the person who waits until age 45 to start.
While everyone’s circumstances are different depending on whether they are a PAYE employee, self-employed, a director of your own company etc. However, the basics of saving into a pension are the same for all of us and most people are unaware of the three distinct tax advantages of contributing to a pension:
Generous tax relief on pensions means that saving for your future won’t cost as much as you might think. Contributions to a pension receive tax relief at your marginal rate of tax, so if you were to contribute €100 to a pension and your marginal tax rate is 20%, this contribution would have a net cost of €80. If you are a higher rate taxpayer, the tax relief is at 40%, so a contribution of €100 into your plan will cost you just €60.
Contributions invested into your pension are allowed to grow tax-free which is of great benefit when compared to the alternative where savings &investments have taxation on any gains at a rate of 41%.
When it comes time to retire and draw down on your pension, you will be entitled to take at least 25% of your fund, to a maximum of €200,000 as a tax-free lump sum.
Now is the time to start contributing to your pension. It is the most efficient way of saving towards your future. Seek independent financial advice and create a retirement plan to set yourself up for the retirement you wished for.