When should you start a pension?

Most people believe having a pension is important, but it’s not always clear how pensions work, why they matter, or how you start a pension.

It’s never too early to start thinking about saving for retirement, even if it’s not at the top of your priority list when you’re in your twenties.

What is a pension?

A pension is a tax efficient (meaning you pay a lower rate of tax) way of saving for retirement by putting aside a small portion of your earnings every week or month throughout your working life. This will provide you with an income after you retire from work and are no longer earning money.

In order to get the most out of it, you will need to review your pension on a regular basis to make sure it is on track. This includes making sure it is funded correctly and that you are making money on any investments you might have. You can work with a financial advisor to keep track of your pension.

Why does having a pension matter?

In short, a pension matters because if you don’t have one, you may not be able to afford to live the way you want when you retire. Having a pension means you can continue with your existing lifestyle, and you won’t need to find ways to save money. A pension allows you to avoid financial worries so that you can make the most of your retirement.

What about the State pension?

While there is a pension provided by the State, it is currently only €12,911.60 a year. This is not enough for most people to live comfortably, and it will kick in at age 66 or even later, which means you won’t be able to retire earlier if that’s what you want to do.

While there’s no way of knowing what the State pension will be like by the time you reach retirement age, it is best not to rely on it completely, as there are no guarantees that it will be enough.

When should you start a pension?

The sooner you can start your pension, the better. However, if you want to save for things like a mortgage or a car, and you feel you won’t be able to save for these things at the same time as saving for a pension, you could start a little later.

Starting at the beginning of your working life, which for many people is in their 20s, is the best approach, but don’t worry if you can’t start until your 30s – you will still be able to make up savings.

Tax relief and pensions

The government offers tax relief on pension contributions, which means you pay less tax on the money you earn that goes into your pension, allowing you to save more money. How much tax relief you get depends on your age:

• Under 30 – tax relief on 15% of your earnings
• 30-39 – tax relief on 20% of your earnings
• 40-49 – tax relief on 25% of your earnings
• 50-54 – tax relief on 30% of your earnings
• 55-59 – tax relief on 35% of your earnings
• 60 or over – tax relief on 40% of your earnings

For example, an employee who is aged 42 and earns €40,000 can get tax relief on annual pension contributions up to €10,000 (25%).

How do you start a pension?

Some people will be offered a pension through their employer, and others will arrange to set up their pension themselves. In order to make sure your pension is set up right, it’s best to find a financial advisor. You can search for a financial broker or go to a bank.

The Government recently announced a new auto-enrolment scheme for all employees over the age of 23. This means you will be automatically enrolled in a pension savings scheme that will be co-funded by your employer and the State. The system is voluntary, so you can opt-out if you don’t want to take part. This scheme is expected to be set up by 2023, with employee enrolments starting in 2024.

Until the auto-enrolment scheme is in place, you will need to arrange your pension yourself if you want to start one.

What is a financial broker?

Financial brokers are impartial financial advisors who will look at your needs, your circumstances, and your budget and make recommendations based on the best options available to you for your pension.

What your needs and circumstances are in your 20s are not going to be the same when you’re in your 40s, so your financial broker will work with you over the years to make sure you’re getting the best return on your investments. This means that your financial broker will not only help you set up your pension, but they will continue to work with you throughout the life of your pension plan.

How to find a financial broker

For many people, the best way to find a financial broker is to ask around. Ask a parent, friend or colleague how they got their pension set up and if they can recommend anyone to you. If you don’t know anyone who has set up a pension, search for a financial broker at financialbroker.ie.

What is the difference between using a financial broker and a bank?

While financial brokers and banks offer a similar service, there are some differences between the two which might influence your decision on who to go for.

Long-term vs short-term relationship

If you choose well, you will most likely have your financial broker with you throughout the life of your pension plan. You will be working with the same person over the years who will keep track of your pension and make sure you’re getting the most out of it.

With a bank, you will not have the same adviser for the life of your plan. You might end up dealing with a number of different people over the years, and you might not get the same level of service after you sign up as you would have gotten with a financial broker.

Finding pension providers

Financial brokers usually have relationships with all the main providers of pensions in Ireland, whereas banks are often tied to one provider. This means a financial broker will be able to shop around and find the best value, while a bank will have more limited options.

Need more information?

We are here to answer your questions and talk through your options. Our online chat service is for 16 to 25 year olds and is available Monday to Friday, 4pm to 8pm. Chat to us now about your situation.

• Chat now to a trained Youth Information Officer
• Or leave us a message and we will email you back