Pension or savings?

[carriedaway]

Hello All,

I need some advice on a private pension, I started a new job back in March and luckily I now have quite a bit of spare cash at the end of the month. I have a PRSA which I have been putting just over €200 PM into (I simply didn't have the income to put more in until now), my employer doesn't have a pension scheme, I might be able to get one in a year or so but they are not willing to make a contribution at the moment.

I probably have €1000 or more left over at the end of every month, after all bills and living costs are covered, should I put half of this into the PRSA, or should I go with a high interest savings account? I'm reasonably happy with my current PRSA provider, but admittedly don't know enough about pensions to know if I'm getting the best deal possible. What are the best performing pension providers at the moment and which would you recommend in my situation. I'm 30, married with two kids and earn roughly €55k (job looks secure, for now at least), my wife works one day a week and earns probably 5k a year. We have no mortgage or loans and a healthy savings account which will be used for a house depoisit when prices return to something approaching sanity and we find the right house. We are both fairly frugal, enjoy the odd night out and meal etc, but are careful with money generally. While there is great security in having savings I feel I have not adequately planned for retirement, any ideas? I have begun to do a bit of research on pensions etc, and some of the advice I have gotten is that the admin fees eat up much of your return and it may be better to look at other investments, confused!

 

[LDFerguson]

If you're thinking about getting a mortgage in the future, make sure that you keep a file with bank statements showing that you're paying rent as well as saving regularly, whether it's into a savings account or a pension. Lenders are very interested to see a history of your being able to afford the mortgage repayments over a long period.

In general, it's considered prudent to keep 3 - 6 months net income in savings for a "rainy day" and it would also be wise to put a few bob away towards your kids' education.

As regards how much you should allocate towards your pension, you could look at what position you'd like to be in retirement instead. As you're evidently good with money, you could probably come up with a figure for how much income you'd like to have in retirement, if you were retiring today. Remember that you probably won't be paying a mortgage or rent by then and your kids will presumably be reared. So strip out such costs as well as monthly savings.

When you've figured out what level of pension income you'd like to have, the Pensions Board have some useful calculators for estimating what level of contribution you'd need to make to get there. [broken link removed]

Bear in mind that any such estimates are based on loads of variables as regards future investment conditions etc. At best they're just indicators.

At present tax relief is available in full at your highest rate on pension contributions. This may or may not be reduced in the future. The good thing about a PRSA is that if tax relief on contributions is reduced in the future to such an extent that it no longer makes sense for you, you can reduce or stop your contributions without penalty.

Liam D. Ferguson