1 Figure out how much you need to put aside

The first step is to decide how much money you need to live every year. This means you need to do an annual budget. You can work out with an adviser how much money you will need on a monthly basis when you retire. Remember to take inflation into account. For example, if inflation is running at 2% per annum, in 10 years, today’s money would have only 80% of its spending power. Therefore, any plan in place will need the fund to grow.

Ask yourself what your attitude to risk is. What is your primary retirement objective; do you have any desire to leave assets behind? Or do you wish to have enough income for the coming years?

Here is a guideline for the percentage of income you should contribute depending on your age:

2 Take advantage of tax breaks

The advantage of starting a specific pension account, rather than just keeping the money in savings, is that a pension attracts specific tax breaks. The three tax breaks are:

  • You won’t be taxed on income you put directly into your pension fund.
  • Tax-free growth in the pension fund.
  • The availability of a tax-free lump sum from the pension fund at retirement age, from up to 25% of the fund to a maximum of €200,000.

    • 3 Put your money in the right type of plan for you

    The type of pension you start is determined by your employment status.

  • An employee in a company that has a pension provision will be a member of a company or group pension.
  • An employee not in a group plan can start a personal pension plan or a Personal Retirement Savings Account (PRSA).
  • A self-employed individual like a farmer can start a personal pension plan, a Personal Retirement Savings Account (PRSA) or a self-invested personal pension.
  • An unemployed individual or a homemaker can start a Personal Retirement Savings Account (PRSA). However, as they may have no taxable income, they cannot claim tax relief on the monthly contributions.

    • 4 Reassess and review your plan

    It is important that you review your pension on a regular basis. It’s recommended that this should be done at least once a year. The size of your pension fund is driven by a number of factors, such as the performance of the assets your pension is invested in, fees and charges, the contributions that you make and the length of time between starting the pension and retirement age.

    Most pensions are invested in a mixture of shares, property, bonds and cash. It is important to keep track of how these investment classes are performing on an annual basis.

    5 Work out how much you’re paying in fees

    When you meet an adviser for the first time, you should be given a Terms of Business. This will tell you what insurance and investment agencies the adviser maintains, and how the adviser earns their fees. It is important to know how much the adviser earns from doing business with you.