Q. My father keeps telling me to start my pension, but I think it’s too soon as I am still young, not on a high salary and have many other priorities. Is it important to start a pension now?


A. For most people, talking about pensions is like watching paint dry. Boring they may be, but they’re still the best way to earn money tax-free.

It’s hard to get excited about something we won’t be able to get our hands on until we’re in our sixties, especially at a time when our grocery and energy bills are rising.

Young people in Ireland trying to scrape together a house deposit while paying record rents might be inclined to deprioritise pensions entirely and that could leave them doubly disadvantaged as they get older. This is because waiting longer to buy a home means you are likely to be paying a mortgage right up to retirement age and thus delaying investing in your retirement.

The government is trying to increase the age at which we can access the State pension – they tried previously but backtracked on the issue after uproar, but this is an issue that’s not going to go away. The taxpayer cannot afford to keep funding pension to an aging population. At the very least, it could mean a reduction in the amount paid out in contributory State pension amounts by the time you retire. And without a private pension to help fill the gap in your budget, you could feel the pinch.

So, despite rising costs, now is the best time to start thinking about the future and what kind of retirement you want to have.

Starting early is key to maximising your retirement income, despite the competing pressures of saving for a home and the general cost of living early in your career. Pensions may not be as much fun, but they do have an upside. Saving into a pension offers generous tax relief on contributions. This relief is set depending on which tax rate you are on. For 2024, if you earn more than €42,000 a year, you will get relief at 40 per cent on money you put into a pension; below this level, the relief is granted at 20 per cent.

This means money that would otherwise be taken by Revenue in tax gets redirected to your pension. That means more money for you in the long run.

Note that savings outside of a pension do not attract tax relief on the way in, but are subject to Deposit Interest Retention Rate (DIRT), which means stumping up 33 per cent of any interest you might earn to the tax collector.

The amount you can invest into a pension fund while getting tax relief increases as you get closer to retirement, and the most anyone can contribute in any one year and get tax relief is €115,000. Starting early is easier. Time is our biggest grower of pensions.

While it might seem counterintuitive to start paying into a pension when you might be at the lowest-paid stage of your early career, and struggling to afford a home, it’s actually the best time. When it comes to long-term investments like pensions, time is one of the best tools available to you to create a bigger return overall.

This works in two ways when it comes to pensions. The first is to compound interest. Any growth your invested pension fund generates is rolled over year into year, snowballing into a larger amount.

Compound interest and time can supercharge your savings. One thousand euro invested the day before you retire will just be €1,000 on retirement. One thousand euro invested at age 30 at 6 per cent growth after a 1 per cent management charge will be €5,516 at retirement [ignoring inflation].

Albert Einstein famously said: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t, pays it”.

The concept of compounding interest is the backbone of building wealth, and it is therefore important to understand and teach it to your children.

The second way to reap the benefits of time and compound interest is to commit to contributions. Some people will be putting in €50 a month and thinking ‘yeah, I’ll be grand’.

Pensions are an amazingly efficient tax way of saving but they’re not magic.

with Philip Cullen of Southeast Mortgages & Financial Services
This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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