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Hi all. I've recently started a new job and I have to make a decision regarding my pension. Company rules and all that. It's a once off decision and I've read the information relating to each option and I'm still finding it difficult to weigh up the pros and cons of each scheme. I've spoken to both colleagues and a financial advisor (briefly on the phone) and I haven't got any advice that has been useful. Can anybody here throw their opinion into the mix? I'd really appreciate it.
Here are the facts:
Age: 25
Retirement age: 65
Salary: €44000
Option 1: Defined Contribution
Up to age 29 - I contribute 5%, company contributes 8%
Age 30 to 39 - I contribute 5.5%, company contributes 9%
Age 40 to 49 - I contribute 7%, company contributes 11%
Age 50 to 65 - I contribute 8%, company contributes 14%
Option 2: '50/50 risk sharing'
consisting of 2 sections
- a DB section 40/80 style, at 2 times the state retirement pension, with a 120/80 style tax free lump sum. Up to a salary cap of €48000 in current money value.
- a DC section for the balance of salary above the salary cap of €48000.
Contributions are 5% of salary below the cap for me, and company pays 8.75% below the cap.
If I earn a salary above the cap, 5% of the salary above the cap is invested in the DC section retirement account. And the company pay 8.75% of salary above the cap.
If contributions were to be increased due to underfunding of pensions, the percentage increase is spread 50/50 between employee and employer.
So can anybody point out a few pros or cons relating to either scheme. It really is very confusing. At the moment I think the 50/50 option has less risk, and I like the idea of having a guaranteed amount at retirement. But I reckon I could receive substantially more with the DC scheme.
The advice the financial advisor gave me was to go for the DC scheme and pay as much AVCs as I can afford up to the max 15%. And select the risky international equities option rather than a managed fund. And as I grow older I can move parts of my pension into more secure funds etc...
Here are the facts:
Age: 25
Retirement age: 65
Salary: €44000
Option 1: Defined Contribution
Up to age 29 - I contribute 5%, company contributes 8%
Age 30 to 39 - I contribute 5.5%, company contributes 9%
Age 40 to 49 - I contribute 7%, company contributes 11%
Age 50 to 65 - I contribute 8%, company contributes 14%
Option 2: '50/50 risk sharing'
consisting of 2 sections
- a DB section 40/80 style, at 2 times the state retirement pension, with a 120/80 style tax free lump sum. Up to a salary cap of €48000 in current money value.
- a DC section for the balance of salary above the salary cap of €48000.
Contributions are 5% of salary below the cap for me, and company pays 8.75% below the cap.
If I earn a salary above the cap, 5% of the salary above the cap is invested in the DC section retirement account. And the company pay 8.75% of salary above the cap.
If contributions were to be increased due to underfunding of pensions, the percentage increase is spread 50/50 between employee and employer.
So can anybody point out a few pros or cons relating to either scheme. It really is very confusing. At the moment I think the 50/50 option has less risk, and I like the idea of having a guaranteed amount at retirement. But I reckon I could receive substantially more with the DC scheme.
The advice the financial advisor gave me was to go for the DC scheme and pay as much AVCs as I can afford up to the max 15%. And select the risky international equities option rather than a managed fund. And as I grow older I can move parts of my pension into more secure funds etc...