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.
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?