Pension Fund Newbie

[OnLooker]

Hi,

I am 26 & thinking about setting up a pension. I already have a house so want to get saving in a pension scheme. My company has a contributary plan with BOI. I contribute 5% & they give 5%.

I am on 40k a year but have no intention of staying with my current employeer for another 2 years so what should I do?? Go with BOI because I would be able to get the tax savings because its deducted from my salary.

Also, what is the story with the % of salary saved. What is the max amount that I can save if I am on 40k? Does it work something like this. If I save 4k a week, I really only pay 2.5k due to tax relief ???

Thanks in advance.

 

[ClubMan]

I am 26 & thinking about setting up a pension. I already have a house so want to get saving in a pension scheme. My company has a contributary plan with BOI. I contribute 5% & they give 5%.

I am on 40k a year but have no intention of staying with my current employeer for another 2 years so what should I do??

You mean you don't plan to be a member of the scheme long enough (2 years) to vest and thus secure the employer contributions?

Go with BOI because I would be able to get the tax savings because its deducted from my salary.

Not availing of employer contributions is normally not a good idea but if you are sure that you won't be there long enough to vest then perhaps that changes matters. What charges apply on the occupational scheme?

Also, what is the story with the % of salary saved. What is the max amount that I can save if I am on 40k?

If you are referring to the tax/PRSI relief limits then see here.

Does it work something like this. If I save 4k a week, I really only pay 2.5k due to tax relief ???

Within the limits mentioned above a high rate taxpayer gets 41% tax and 6% PRSI/health levy relief on each €1 contributed so in net salary terms you are only €0.53 out of pocket with the €0.47 made up by Revenue.

 

[OnLooker]

I intend to move jobs in the coming year so I won't be able to take the employeer contributions with me so would it be better for me to shop around or go with the company scheme even though I can't take their contributions with me??

Is there any major differences in the packages offered??

Thanks.

 

[ClubMan]

I intend to move jobs in the coming year so I won't be able to take the employeer contributions with me so would it be better for me to shop around or go with the company scheme even though I can't take their contributions with me??

What charges apply on the employer scheme? Even if you cannot take the employer's contributions with you (due to not having two years membership) if the charges are competitive then building up some membership vesting time that can be transferred into another occupational scheme later on could be beneficial. Even if you only do the minimum amount through the employer scheme and maybe use something else (e.g. a low charges PRSA) for AVCs if you want make further contributions in order to avail of more of your pension tax relief.

Is there any major differences in the packages offered??

Yes - there are PRSAs and personal pension plans, different fund offerings, different charging structures.

 

[The_Donald]

Personally I would set something independant of your employer in the circumstance that you are in.

Since the employers contributions are not going to be beneficial if you and leaving within the two year period and cannot take your contributions with you ...

If i were you i would hold off until later in the year when some more flexible PRSA options should come to the market ...

If you have enough self control i would put aside contributions to a savings account for now ... then when a suitable PRSA option presents itself ... You could add all you funds to this to begin your pension ...

You could also consider adding extra to avail of AVC tax relief back dated to last year ... this would give you a nice little starting amount in your fund ...

You can then also begin contributing to this plan when you change company ... It would also mean less admistration headaches in dealing with your plan from the 'old company'

But choice is a very individual thing

 

[ClubMan]

Since the employers contributions are not going to be beneficial if you and leaving within the two year period and cannot take your contributions with you ...

It still may be useful to build up some occupational pension fund vesting time - e.g. if you are a member of this scheme for a year and then transfer into another employer's scheme further down the line then your vesting time will be halved to one year as far as I know. Worth at least checking that out.

If i were you i would hold off until later in the year when some more flexible PRSA options should come to the market ...

More flexible in what way? What sort of changes are imminent? Regulatory changes or just new products?

If you have enough self control i would put aside contributions to a savings account for now ... then when a suitable PRSA option presents itself ... You could add all you funds to this to begin your pension ...

But why not just get a 0%/1% PRSA now and get started?

You could also consider adding extra to avail of AVC tax relief back dated to last year ... this would give you a nice little starting amount in your fund ...

Don't forget to claim PRSI back separately on standalone pension contributions.

Claiming PRSI relief on standalone PRSA contribution

 

[The_Donald]

The vesting time is an interesting point Clubman ... i am not up to scratch on that so I cannot comment. I guess if their is value in that approach would depend future plans for the amount of time to be spent at other companies!! but interesting point all the same

As far as changes i can only speak for myself ... and i am speaking of product offerings ... I for one would like to have more control over where my funds are invested !!! This is not to everyones taste though ...

But another reason that i think is relevant to OnLookers situation is simply to keep his pension independent of work for now ... but again it is individual choice and this would be mine in this position.

Of course the choice of PRSA is up to himself and there is no reason why he cannot begin immediately !!!

Basically OnLooker if you are on 40K PA you can contribute Max of 15%

40K X 15% = 6,000 for this year

This is perfect since the high band now starts at 34K so this 6K qualifies for full relief and this will also cost you just over half that amount.

Also you may want to scrimp and save a little more and added extra this year and claim tax relief for last year!

If you are contributing in a lump sum check out the PRSI link Clubman has put up also.

Regards

 

[ClubMan]

Also you may want to scrimp and save a little more and added extra this year and claim tax relief for last year!

Yes - good point. See here:

October 31 - what does it mean for PAYE worker?

If you are contributing in a lump sum check out the PRSI link Clubman has put up also.

Not just a lump sum - it is relevant even if you are making regular pension contributions out of net income. You can get tax relief at the year end or by having Revenue increase your tax credits but to get PRSI/health levy relief you will need to manually claim it as per the link posted above.