How Much To Save?

Well, saying that pensions are for suckers is a little extreme...

But there is definitely a mis-conception out there that pension money is totally tax-free, which (all of it) definitely isn't. Liam's example also assumes that the pension holder has a spouse, which of course may not necessarily be the case (although with the budding romance between Kemo-Sabe and grotty, you never know!)

As well as not being tax free, pensions are also obviously only available once you hit a certain age (some schemes allow you to take out limited portions at various ages, from 55 I think) and that's a significant limitation, particularly if you want to try to retire early. If you want to do that, then an investment that will pay out after a certain time but is not dependent on your own age may be a good thing to add to the mix.

Grotty, you should certainly be "saving" more than 200 a month - in order to ease yourself into it and really see what affect it has on your disposable income/lifestyle, perhaps increase by 100/200 a month each 6 months or so? You could open a regular saver account and get those lovely high interest rates and, if you do fancy putting some into your pension, you can make a contribution at year end and get the tax back on the lump sum contribution. Ideally, you'd want to put more than 200 a month into your pension in any case, particularly if you have the disposable income, which you certainly seem to do.

I'd just question whether or not to "save" all your money into the pension scheme *if* it doesn't leave you room for other investments. Once your regular saving nest egg accumulates, you can think about other investments to bring in a return separate from your pension.

Sounds like you have it all sorted though - it's a nice quandry to be in

Sprite
 
LDFerguson said:
The notion that pensions are not an efficient form of saving has been debated here before. Here's another example.

Let's have a few FACTS: -

  • The majority of people pay 20% tax in retirement. When you build up a pension fund, you get a tax-free lump sum in retirement. Often, this is 25% of the fund. In Occupational Pension Schemes, it might be more. Let's assume it's 25%. So if you get 25% of your fund tax free and the balance is taxed at 20% (less tax credits), let's say your average tax rate on your pension fund withdrawals is therefore 15%. So you get 41% tax relief going in and pay 15% tax coming out. Explain to me why this is for suckers.
  • At present, tax exemption limit for a married couple where one partner is over 65 is €40,000. So if your total pension and other income is €40,000 or less, you pay no tax at all. If this is your situation, you could get 41% tax relief going in and pay no tax coming out. Still think pensions are for suckers?
  • As has been mentioned, a pension fund pays no CGT on gains made on investments.
  • Of course management charges apply. I've never come across a form of investment where the operator works for free. There are countless threads here on Askaboutmoney where you can find examples of where you can invest your pension fund so that the total annual charge is around 1%. With the amount of information that's out there, if you end up paying into a pension that imposes uncompetitive charges, you obviously didn't bother to do your homework.
Click to expand...

Well a few facts are welcome:

1. Pension funds are under performing lemons by and large. In the last 10 years most of them have accumulated about 2% p.a. net growth - so try matching inflation with that!?! ( I am a former pension trustee for a large enough company and know the pain this inflicted on us)

2. You pay a management charge on your money right from day 1 to the day you die!!!- this adds up. Very few pay 1% or less Liam, much more likely to incur 1-2.5%- 3.5% on entry (and/or changing funds) and 1.5%+ p.a. on going management

3. You do not have access to your money in case of a life emergency or whatever until you are 60+

4. If an employer is matching your fund input that obviously improves the business case for one but since many people have this, the economics and market are geared for that subsidisation - so conversely if you are not receiving that subsidy then it probably will not pay for you.

5. Any sane person over the past 10-15 years who put their pension contribution amount towards a mortgage for a buy to let would be way ahead right now. Furthermore they would now be half way to owning a debt free income producing asset that will yield income that will increase roughly with the CPI (i.e. as rents rise) well into retirement.

If they ever hit a life event that needs funds they may even opt to remortgage the property at that stage to fund this thereby using their 'savings asset' to help them live life with the security of having some access to their savings.

Then on death they can pass the asset on to spouse or siblings.

Argrument over.
 
Daithi7 said:
1. Pension funds are under performing lemons by and large. In the last 10 years most of them have accumulated about 2% p.a. net growth - so try matching inflation with that!?! ( I am a former pension trustee for a large enough company and know the pain this inflicted on us)
Click to expand...

You're being selective about your choice of time period to try to further your argument. Average Irish Managed Pension fund returned 6.3% per annum over 11 years, 7.6% over 12 years, 8.7% over 13 years etc. These being averages, obviously better ones did better than this.

Recent stock-market events have of course dragged down all averages. A recovery will drag them back up again.

Daithi7 said:
2. You pay a management charge on your money right from day 1 to the day you die!!!- this adds up. Very few pay 1% or less Liam, much more likely to incur 1-2.5%- 3.5% on entry (and/or changing funds) and 1.5%+ p.a. on going management
Click to expand...

If someone is reading this on Askaboutmoney, then they have the information to hand to obtain 1% charges, so why wouldn't they?

You use the example of property purchase as an alternative. Much higher initial outlay (paid out of after-tax income), legal costs, Stamp Duty, income tax at marginal rate on rent, property management charges, property maintenance costs, void periods where you have to pay the mortgage but have no tenants, CGT on disposal, more legal costs on disposal, auctioneer fees on disposal...need I go on? I won't even get started on the time cost of property ownership.


Daithi7 said:
3. You do not have access to your money in case of a life emergency or whatever until you are 60+
Click to expand...

True.

Daithi7 said:
4. If an employer is matching your fund input that obviously improves the business case for one but since many people have this, the economics and market are geared for that subsidisation - so conversely if you are not receiving that subsidy then it probably will not pay for you.
Click to expand...

This point makes no sense. If your employer pays money into your pension, they pay money into your pension. It's tax and PRSI-efficient for the employer and there are no BIK implications for you. Are you trying to say that this is a bad thing?

Daithi7 said:
5. Any sane person over the past 10-15 years who put their pension contribution amount towards a mortgage for a buy to let would be way ahead right now. Furthermore they would now be half way to owning a debt free income producing asset that will yield income that will increase roughly with the CPI (i.e. as rents rise) well into retirement.
Click to expand...

Tax inefficiency of this as well as the multitude of other disadvantages already dealt with in 2 above.

Daithi7 said:
If they ever hit a life event that needs funds they may even opt to remortgage the property at that stage to fund this thereby using their 'savings asset' to help them live life with the security of having some access to their savings.
Click to expand...

Nobody should put all their savings into their pension plan. They should keep funds aside for emergencies.

Daithi7 said:
Then on death they can pass the asset on to spouse or siblings.
Click to expand...

As they can do with an Approved Retirement Fund.

Daithi7 said:
Argrument over.
Click to expand...

Now the argument's over.
 
Hey Liam,

Check out table below for 10 year performance of pension funds: from http://www.finfacts.ie/fincentre/irishpenfunds.htm

Group Pension Managed Fund Returns to 30 April 2008​

1 Month​

%
4 Months​

%
1 Year
%
3 Years
% p.a.
5 Years
% p.a.
10 Years
% p.a.
AIB Investment Managers
4.5
-7.9
-10.4
8.9
9.9
3.3
Bank of Ireland Asset Management
4.2
-7.0
-15.4
3.3
6.6
4.1
Canada Life/Setanta
3.0
-6.8
-10.5
5.5
8.4
3.1
Eagle Star
4.4
-7.3
-10.0
8.8
10.4
4.2
Friends First/F&C
4.8
-9.8
-14.6
6.1
8.5
3.1
Hibernian Investment Managers
4.5
-7.7
-12.1
7.0
9.1
3.8
Irish Life Investment Managers
3.9
-7.6
-12.6
7.1
9.8
4.0
KBC Asset Management
4.7
-8.1
-15.0
6.1
7.8
2.5
Oppenheim Investment Managers
2.9
-7.5
-10.9
7.3
9.0
5.3
Standard Life Investments
5.1
-7.2
-14.5
7.6
9.3
3.1
Average
4.2
-7.7
-12.6
6.8
8.9
3.7​


That's an average of 3.7% p.a. return over 10 years. And I bet that does not even take into account the entry cost (normally between 1.5-2.5% and may not even take into account the ongoing management costs).

Secondly, my point about employer contributions are clear to most people I'd say, unless of course they work in the pension business that is: since the market is aimed at selling pensions to people who normally get employer contributions that it is not necessarily that competitive for people who don't. Simple. Everyone knows about the fat charges and up front commissions at this stage and they eat into everyone's net return but most particularly into someone like we have here who will be stumping up the cash to invest themselves.

A Buy to Let investment hammered a pension investment in Ireland for the past 10, 15 and 20 years. That's cos pensions tend to be poxy investments that exploit the tax and employer incentives in Ireland to excuse underlying crappy returns that hardly even keep pace with inflation.

Argument well and truly over.
 
Don't know why you insist on repeating arguments after I've already disproven them.

  • Already dealt with your use of 10-year figures. See point 1 above.
  • I work in the pensions business and the mortgage business so it makes no difference to me whether people buy property or pensions.
  • Your suggestion that schemes which feature employer contributions somehow suffer worse charges than those which don't is simply not true.
  • There are pension arrangements out there which feature uncompetitive charging structures. There are others which feature competitive charging structures. The information you need to distinguish between the two is available here and in plenty of other places if you take the time to look. It's simply a gross over-generalisation to label an entire industry as bad value simply because there are bad value products available in it. If you buy a car and it turns out to be unreliable and uneconomical, do you then decide you're never going to buy a car again because cars are unreliable and uneconomical?
Everyone knows about the fat charges and up front commissions at this stage and they eat into everyone's net return...
Click to expand...

Nobody should invest in a pension product with fat charges or up front commissions.

A Buy to Let investment hammered a pension investment in Ireland for the past 10, 15 and 20 years.
Click to expand...

That's a very impressive statement. Can you back it up with any evidence, like figures? Obviously any meaningful comparison would have to take account of borrowing, initial outlay (paid out of after-tax income), legal costs, Stamp Duty, income tax at marginal rate on rent, property management charges, property maintenance costs, void periods where one had to pay the mortgage but had no tenants, CGT on disposal, more legal costs on disposal, auctioneer fees on disposal etc. etc.

Argument well and truly over.
Click to expand...

It is now.
 
Liam,

10 year figures are not selective they are a recognised way to measure any investment.

It figures you work in the pensions business only someone in it would try to defend the numbers.

Re comparing buy to let versus pensions over the last 10 years: easy. Most people here can probably compare the difference in return they received on their buy to lets against the endless vacuum that was their pension for the last 10 years and lets face it, no snake oil salesman would try to convince them of a revision of such recent history - would they!?
 
Daithi7. Well done to you sir.

I'm one of the unfortunates that started his pension 10 years ago exactly and can vouch for the terrible performance. I'll give the AVCs another 4 years. If the recovery hasn't kicked in by then to establish a better long term average I'm going to stop the AVCs, pay all the income tax up front and take more direct control. I'll continue with the employer and compulsory employee elements. I'm already making long term savings outside of the pension and its doing better just by keeping it in savings accounts pending the recovery of the stock markets.

Right at the end, 55+, if I'm still working, I'll load up the AVCs again if it's clearer that I'll be able to withdraw them at 20% tax. Hopefully the pension fund won't erode too much of my contributions during those 5 years.
 
I repeat...

I work in the pensions business and the mortgage business so it makes no difference to me whether people buy property or pensions.
Click to expand...

That's a very impressive statement. Can you back it up with any evidence, like figures? Obviously any meaningful comparison would have to take account of borrowing, initial outlay (paid out of after-tax income), legal costs, Stamp Duty, income tax at marginal rate on rent, property management charges, property maintenance costs, void periods where one had to pay the mortgage but had no tenants, CGT on disposal, more legal costs on disposal, auctioneer fees on disposal etc. etc.
Click to expand...
 
Daithi7 said:
10 year figures are not selective they are a recognised way to measure any investment.
Click to expand...

Recognised by who?

They are only relevant if your investment timeframe is 10 years. If I've got a 20 year timeframe, I've no interest if a short-term dip has dragged the 10 year average performance down.
 
Liam doesn't the 10 year dip or 30 year dip seriously affect people who are at retirement age and compulsorily have to buy an annuity (or what ever it's called)? Also do you know what percentage of people actually only pay 1% charges, I bet it's very low.

Seriously good debate though - Liam and Daithi, especially as the language of such a complex issue is so difficult.

The best advantage to pensions in my opinion is that at least the people who have them will have some extra income in retirement and even if the returns aren't great, it's certainly better than just the state pension, especially as there are plenty of people who do not know how to handle money so it's actually better that it's locked away.

The best advice is to have diversity - property, pension and savings.

OP - On your salary 1/3 savings/investments 1/3 spending and 1/3 mortgage, and you really ought to know where your money is going.
 
Last edited:
Bronte said:
Liam doesn't the 10 year dip or 30 year dip seriously affect people who are at retirement age and compulsorily have to buy an annuity (or what ever it's called)?
Click to expand...

If someone is still invested in equity or property-based funds immediately prior to retirement, then the recent dip definitely causes them a problem - they either defer their retirement or retire now and suffer a very real loss in their annual pension. Either option is nasty.

This is why it is SO important for people to review their pension funding (or employ someone to do so) every few years, especially as they approach 10 - 15 years to retirement itself. They should be considering switching into low risk funds to avoid their retirement coinciding with a cyclical dip in the fund value.

Bronte said:
Also do you know what percentage of people actually only pay 1% charges, I bet it's very low.
Click to expand...

I don't know but I'd be inclined to agree with you - it probably is a very low percentage.

But the people that have found their way to Askaboutmoney.com now have all the information readily available to make sure they don't buy a pension product with uncompetitive charges ever again. This is why I don't agree with an argument here on this board of all places about "fat charges and up front commissions" being used to support the wild generalisation that "pensions are for suckers".
 
rmelly said:
So how much should the OP be saving?
Click to expand...
As much as they realistically need to fund their short, medium and long term plans/goals whatever these are. Asking how much should be saved per se is meaningless. It only makes sense when considered in the context of the individual's overall financial/personal circumstances and with some knowledge of their short, medium and long term plans.
 
Moderator note: Rant deleted.

rant over.
Click to expand...

Daithi

Please don't drag the thread off-topic with your rant. by all means feel free to start a new thread on the general issue.

Brendan
 
ClubMan - thanks for the reply, I think you may have hit the nail on the head, I don't have any goals set at the moment, that I would need to save for.

I suppose I just don't want to be flittering money away just because I don't have the forsight to have goals set at this stage.

I will start to think what I might need money for in the future, and that might point me in the right direction.And until I have an idea of goals, Bronte I will give your suggestion a go!

Thanks all
 
grotty said:
ClubMan - thanks for the reply, I think you may have hit the nail on the head, I don't have any goals set at the moment, that I would need to save for.

I suppose I just don't want to be flittering money away just because I don't have the forsight to have goals set at this stage.

I will start to think what I might need money for in the future, and that might point me in the right direction.And until I have an idea of goals, Bronte I will give your suggestion a go!

Thanks all
Click to expand...

One very basic piece of financial advice that is nonetheless very effective is to keep a Money Diary for a month. Buy a small notebook that you can carry in your pocket. Carry it everywhere with you for a month and write every single purchase into it, down to your newspaper. Then at the end of the day or week, transfer your scribbled notes onto a spreadsheet on your computer, with itemised lists of your spending, e.g. newspapers, groceries, coffees etc. You may well be surprised at how much you're spending on things you didn't really think about. It's a good place to start a plan.
 
Daithi7 said:
Moderator note: Rant deleted.



Daithi

Please don't drag the thread off-topic with your rant. by all means feel free to start a new thread on the general issue.

Brendan
Click to expand...

Apologies Mod,

I presumed since it included that my accountant advised me against ever buying a pension 12 years ago and that I consider it to be the single best piece of financial advice that I ever received that it was in some way relevant.

D
 
You must log in or register to reply here.
Back
Top