Pension Basics…..All You need to know


Pensions-The basics and what you need to know


1. Pension Contributions-You can lower your tax bill but you need to move fast-Deadline 31st October 2011

Kill 2 birds with one stone

(1)Reduce your Tax and (2)Put away money for your Retirement.

You can still make a pension contribution which will generate tax relief at your marginal tax rate i.e. either 41% or 20%. If you select a low risk fund (Cash Fund) which is not exposed to market changes you are way ahead of the game because of the effect of tax relief.

Example

Make a €10,000 pension contribution. If you are a 41% rate tax payer then the net cost to you after tax relief is €5,900 yet you have an asset worth €10,000.

Therefore on your initial investment of €5,900 you have generated a total return of 69% with little or no risk.

169% Return including original investment= (€10,000/€5,900)

2. How will I provide for my Retirement-Questions to ask yourself.

Some of the questions you should be asking yourself

  • Do I have clear vision of my life in my 60s, 70s and 80s?
  • Where do I want to live and what do I want to do?
  • What will my income levels be?
  • When can I collect my State pension?
  • What will the State pension be worth?
  • How can I mange the time gap between retirement and getting my State pension?
  • What will I do if the State pension is reduced or means tested?
  • How long will I need my pension fund to last? 10 | 20 | 30 years

3. Existing Pension Review-the key things to be actioned

It’s very important that you review your existing pension plans immediately and answer the following questions:-

a)    Funds Selected-What risks are associated with my pension funds?

b)    Diversified-Do I have a diversified set of funds or just one?

c)    Growth-Is there any element of growth in the funds selected to make up for any encashments and charges?

d)    Amount-How long will my funds last based on current encashments?

e)    Security-Do I want a certain percentage of my funds in a guaranteed fund?

f)    Provider Risk-What is the financial security of my Provider?

g)    Performance-How are my funds going to perform in the current economic climate?

h)    Charges-What charges am I paying and how does it impact my Pension?

i)     Access-How much can I access and what are the implications?

j)     Switch-Can I switch my funds to another lower/higher risk fund? What costs are involved?

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About Bill Anderson

Bill is a qualified financial adviser (QFA) and also a qualified accountant (FCCA).
This entry was posted in Mortgages, Self Employed, Tax and tagged , , , , . Bookmark the permalink.

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