6 Year Old Pension - What To Do Now?

L

Lex Foutish

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Spoke to a cousin tonight. He's 33, a company employee and started a pension about 6 years ago with an Irish pension company. He's paying about €110 per month (which to me doesn't sound a lot but it's what he can afford). He's paid in about €8000 to date and recently got a statement telling him it's worth about €4k at present.

He's quite confused as to what he should do. He's thinking of stopping payments altogether and putting the money into a high yield savings account each month instead. I explained to him that he can claim tax relief on his contributions but that wasn't of much consolation to him, given the current value of the pension fund. Could he access that money if he stopped paying into it or would he lose it? Would he have to wait till he's a certain age before he could access it? If you know a bit about pensions, what would you recommend he do?

I told him I'd post here and come back to him. Any advice or words of wisdom would be appreciated.
 
  • He cant take the money out.
  • He gets tax (PAYE & PRSI) relief on what he puts in.
  • Pension contributions/payments buy 'Units' which consist of Shares, Bonds Cash etc. So his current contributions are buying 'Units' at what is a reduced price which 'should' rise as the world economy recovers.
  • When he started his pension the pension companies were 'forecasting' up to 12% return, the reality of 4-5% is closer to the mark, so in real terms if he keeps putting in €110 per month and inflation running at the same % he will get enough money from his pension for a few pints in the local and bag of chips each week.
 
And he got 30 years to go before he retires. He shouldnt worry about the value of it now to be honest. As previously posted hes currently buying units at relatively low prices and has plenty of time before retirement for markets to recover. There will probably be another 3 market recoverys and another 3 market crashes before he retires. The buying of units in bad times is how equities have traditionally outperformed every other asset class.
 
StevieC said:
......There will probably be another 3 market recoverys and another 3 market crashes before he retires. The buying of units in bad times is how equities have traditionally outperformed every other asset class.
Click to expand...

I have the same issues myself at present. "Timing" rather than "time" in my opinion is the biggest issue of concern. I agree wholeheartedly that there will be many crashes & recoveries before his retirement. However it is the timing of those crashes that is of most importance. Basically if his retirement falls at the wrong time i.e. during a crash his pension may be worth very little. On the "glass half full" side if his retirement falls a while after a recovery he's on the pig's back. So the issue is now how a pension performs as such, it is more how it has performed at a specific time
 
Agree totally. There are products however on the market that move you into safer asset classes as you draw closer to retirement. These do help mitigate against market crashes. Timing is everything though and its really tough on those who wanted to retire this year and many will find themselves looking to postpone their retirement plans in the hope that funds will recover.
 
Thank you very much, boys and girl, for the responses and the clarity of them. I'll pass your advice and comments on to him over the weekend.

I'm not sure what his gross salary is but €110 per month pension contribution sounds a bit low to me. What do ye think? Can he increase it, at any time?
 
It does seem low but its all relative. Like you said before its what he can afford. There should not be a problem increasing his premium at any time if he feels he can afford to put in more and wants to do so.
 
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