There’s something about the word ‘pension’ that strikes up a groan of pessimism amongst a group of people, of any age, if the topic finds itself at the centre of their conversation. Not everyone understands why starting a pension is a great idea and the various recessionary periods and general negative media coverage hasn’t helped. Who amongst us has read a good-news story about a pension in the last 10 years?!
With 60 years’ worth of industry experience in Trust Matters, we still find ourselves wondering when will the tide turn? When will people finally go through the ‘light-bulb’ moment of realisation that they’re missing out on the biggest tax bonus, that is legitimately available to us all, young and old. We need to turn that switch on, starting a pension is a great idea if only for its tax benefits.
A ‘pension’ is one of those remarkable vehicles that can be used throughout our lives to minimise the amount of tax we pay – the bonus at the end is that we have a pot of money to draw on in our wistful retirement years of fun and frolics. At least that’s the way we recommend how people should view their pension planning.
Back in the early noughties, we were awarded another type of bonus from the government, known to most as the infamous SSIA scheme. For those of us who remember this elusive scheme, we dazzled in the joy of receiving this ‘free money’ – some managing to attain quite a sizeable pot! Tales of ‘bring back the SSIA’ often whimpers through many a conversation among peers but little do people realise, a real-life SSIA lives among us, every day, in the form of a pension.
So what are the tax advantages of paying into a pension?
Hopefully, you’re starting to see why starting a pension is a great idea. But if you know nothing about pensions, know this:
- For those of you on the lower tax bracket, paying €100 into a monthly pension costs you €80
- For the half million people in Ireland on the higher tax bracket, it only costs you €60
- The government pays the other €20 / €40 for you, every time!
- With that in mind, consider the effect of putting €1,200 into your pension on an annual basis, on the higher tax bracket – it will only cost you €720.
- Multiply that saving by 35 years and the penny will slowly drop. The government handed you almost €17,000 during that 35 year period – for free!*
- Adding an element of risk to enhance the performance of the pension saving means that any growth accumulated, during its investment years, is compounded each year. So the net result could actually be a lot more than €17,000 at the end of a long term pension savings policy.
When asked about the best time to start a pension, our answer is always – yesterday! And hang onto your hats because the tax advantages don’t end there.
Keep reading for more rip roaring tales of tax break benefits in the articles to come!
*Tax relief figures quoted are based on 2020 legislation and may be subject to change in future budgets