By Frank Conway
Top 5 Pension Planning Tips
There are a few smart tactics to be considered to keep pension plans on track, depending on the types of pensions an individual may hold and where they are in their life cycle.
Tip 1: Take FREE money and max out on tax relief that belongs to you!
If you are a higher rate of tax payer you should contribute as much as you can afford to avail of tax relief at 40% (2017 rate) subject to the maximum contribution limits. This chart provides the maximum allowable limits for personal contributions:
|Age||Amount which qualifies for tax relief|
|Under 30 years||15% of net relevant earnings|
|30 to 39 years||20%|
|40 to 49 years||25%|
|50 to 54 years:||30%|
|55 to 59 years||35%|
|60 and over||40%|
Tip 2: Consolidate your accounts
Increasingly, we work for more than one employer and if you have been contributing to various pensions, you may want to examine the value of those perhaps even consolidate them to have one unified account (some employers may not permit this option). But it is always good to carry our this single-view exercise as it means that employers will have your personal records up to date, plus, it will make it easier to file for your benefits when the time arrives.
Tip 3: Start early
The best way to grow your pension pot is by starting early. Why? Well, it is because you can put the power of compound interest growth to work for you. And this is an important point in the growth of pension wealth. Remember, it is not just the savings and tax relief that you, your employer and Government offer, at the end of the day, it the very significant growth potential of compound interest growth that creates very significant personal wealth and the longer you are making pension contributions, the greater the ‘compounding’ impact.
Tip 4: Reduce management fees and charges
As outlined in Point 4, the real growth in the value of a pension fund is the compounding impact of interest over time. But, many older pension accounts have very high ‘management’ fees and charges and these simply rob your long-term growth potential. So, it is important you become familiar with what the overall Ongoing Charges Figure (OCF) that is applied to your fund(s).
Tip 5: Put yourself first
With any pension plan, the longer you contribute and the more you know, the more likely that you will start early, reduce fees, maximise contributions and minimise fees, this is a winning formula. But, be humble – ask your adviser all of the difficult questions and remember, there are no ‘dumb’ questions when it comes to growing and protecting your personal wealth. If you are not prepared to put yourself first, chances are high that your pension may not grow as fast as it could
* Net Relevant Earnings: Earnings from a trade, profession, office or employment which are subject to income tax. Net relevant earnings are capped at €115,000 for 2016. (Part 30 of the Taxes Consolidation Act (TCA) 1997 as amended.) Tax relief is only available where you have Net Relevant Earnings in the tax year.
* * The rate of 30% applies to certain specified occupations irrespective of age