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Private pension options

Gerard Scully | Senior Information Officer | Age Action
Written by: Gerry Scully
Senior Information Officer
12/10/2017

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Private pensions are not mandatory, writes Gerry Scully, but given we all hope to one day collect the president’s bounty and to live well while waiting for that happy event private pensions are a necessity.

Pensions

Question

Dear Age Action,

I have recently changed employers and I am wondering about my private pension options. I have been told my new company has a defined contribution pension and I am wondering what this means.

Ronan from Waterford

Answer

Private pensions are not mandatory, writes Gerry Scully, but given we all hope to one day collect the president’s bounty and to live well while waiting for that happy event private pensions are a necessity.

While most employers now provide private pensions the heady days of Defined Benefit Schemes, that guaranteed a certain level of income, are gone and replaced by the more affordable (for the employer) Defined Contribution Schemes.

These offer certainty for how much an individual pays but no guarantee of the pension’s value. These may be offered in the form of individual funds in which you choose from a number of products depending on the level of risk versus return with which you are comfortable.

Alternatively, where there is a single fund managed by the company, through a pension broker and trustees, the value of one’s pension depends on the value of the contributions a person makes and for how long.

If a person, perhaps because they started their career late, wishes to make additional contributions occupational schemes often allow people to do so through AVC or Additional Voluntary Contributions. 

Tax relief

AVCs are very common in individually managed funds but some centrally managed funds do not offer the option. In the latter case an employee can take out a PRSA, or Personal Retirement Savings Account, and you can take your pension from one employer to another.

This is very useful in today’s labour force as the majority of people will have more than one employer in their career.

Finally, it is worth remembering that the Government provides generous tax relief on pension contributions to encourage people to save making investing in a personal pension an even better idea.

The world of private and occupational pensions is very complex. In my next few columns I will be explaining some of the terms and rules that apply to occupational pension. 

Don't forget you can contact the Age Action Information Team on 01 475 6989 or email helpline@ageaction.ie

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