Want to get a pension...but don't know where to start
No your question is not basic ..indeed you appear to be well clued in!
The first thing you need to do is to check with your current employer to see if you are or are not included in their occupational pension scheme for a pension. If you are (and its very unlikely you are) then you wouldn’t be able to get tax relief on any PRSA contributions you might make and if you want to make additional provision for retirement you should ask your employer about AVCs. Therefore this is the first thing you should check out.
Assuming your employer does not include you in a pension scheme for a pension (which is more likely), they must (since 15th September 2003) have signed up at least one Standard PRSA product which they must make available to you at work. I would suggest that this is the most convenient PRSA for you and go with that. Don’t torture yourself looking for the ‘cheapest’ or ‘best’ PRSA out there; its all a matter of opinion to a large extent. Your employer must offer you a Standard PRSA, and Standard PRSAs have capped charges..the most you will have to pay is 5% of each contribution + 1% pa of your fund. So you’re not being ripped off, or anything close to being ripped off, given your young age and long period to retirement. Ask your employer for details of this product.
If you’re not included by your employer in a pension scheme for a pension, you have the right to contribute to this Standard PRSA at work by deduction from salary, which means your PRSA contributions will be deductible for Income Tax, PRSI and Health Levy....so there’s a very good tax saving. E.g. for a top rate taxpayer saving could be up to (42% +4%+2%, i.e. a gross PRSA contribution of €200pm might hit your bottom line for as little as €104pm. Your employer must legally pay over the contributions deducted from you to the PRSA provider within 21 days of the end of the month in which the contributions are deducted from you.
You can contribute as little as €25 pm, and you can stop and restart, decrease (but not below €10pm) or increase contributions, without penalty.
Re PRSI savings, note that your employer will have also be saved PRSI @ 10.75% if you make PRSA contributions by deduction from your salary at work. E.g. if you contribute €200pm gross to a PRSA, your employer’s PRSI liability in respect of your earnings will reduce by 10.75% x €200pm, i.e. by €21.50 pm. You should therefore try to persuade your employer to contribute at least 10% of what you’re going to contribute (gross amount) on the basis that there is actually no additional cost to your employer due to the PRSI savings that will accrue.
Finally a tip. You can make a lump sum payment to a PRSA ( you would have to pay this gross to the PRSA company, i.e. not by deduction from your salary) before 31st October and elect to backdate the payment to the 2002 tax year and in this way get a tax rebate from last year’s tax.