Pension Advice

[matthewaworkerforthelord]

I’m looking to get myself enrolled into a PRSA before this horrendous auto-enrolment scheme kicks in this year (I’m surprised there’s not uproar about how this is being implemented because long term this will make pensions much more costly to the individual as far as I’m concerned)

Info about me:
25y/o
My employer won’t facilitate money straight from my wages (I know this isn’t allowed but I’ve not got far with them on any similar issues no I’ve decided to let this be).
I think a PRSA is the best way to go for me but I’m open to other options if there’s better out there.
I have an ok savings pot at the moment so will be looking to invest in initially a lump sum of whatever is tax efficient for my earnings last year up front (somewhere between 6-7k is my estimate).
I want to contribute just short of the 15% allowed for tax relief monthly on my current wage (I am a contractor so it’s a contingency in case my contract is not renewed, I would top up to the max at the end of the year- I just don’t want to assume 40% relief and accidentally fall into the 20% if I’m out of work for any time).

I’ve had a chat with Irish Life and the fees seem to be insane for their account. Only 95% of what I give them will be actually invested and then there’s a 1% annual fee (minimum, potentially more if I choose certain funds) for them to do effectively nothing is my understanding after that?
If I was to put in 10k, before anything has gone up or down they’ve already skimmed €600 off my money. And that 1% fee will only get more significant as years go on (it’s off the balance, not increase).

Is this standard? These fees seem incredibly high. Or are Irish Life giving me poor terms here because I don’t know what I’m talking about? Are there options where these fees are lesser that I might be better off looking into?

 

[alzebetha]

@matthewaworkerforthelord I’ve recently sent up a pension with Zurich. Went through a broker. My understanding is 100% allocation fee and 1% yearly charge. My employee does not contribute but did pay the broker fee. He has charged a fee as wasn’t get paid to bring me to a Specific pension. Zurich at the moment seems like the best all rounder.

 

[jesrdking]

@matthewaworkerforthelord How is auto enrolment going to make pensions much more costly?

 

[matthewaworkerforthelord]

@jesrdking This is in lieu of tax relief and cannot be used in addition to contributing to the current options available. You’re also capped initially at a 1.5% contribution (boosted to 3.5% with gov and employer contributions) which will go up to 6% (boosted 14% total contributions in 10 years time).

The key is that there is no flexibility in these numbers, it’s totally fixed. So for me, I’m earning ~55k annually at 25:
I can add €8250 annually eligible for tax relief in the 40% bracket (costs me €4950, or 60% cost to me).
If I was luckier I’d also have an employer contribution (more free money in addition to this- not classed as BIK anymore) which can go up to 8-10% in my industry- say a hypothetical €4400 if it was 8%. In this case at a cost to me of €4950 I would have €12650 in my pension for the year (around 40% cost to me).
Adding this when I’m young, I have compound interest on my side, so it’s of much greater benefit to make greater contributions at this age than when I’m closer to retirement.

If I instead went down the government route:
I would only add €825
My employer would add €825
The government would add €275
For a total of €1925
(At around 42% cost to me)

In my current situation without my employer contributions, it’s a greater % cost to me right now (offset if I can get employer contributions added soon). But it’s a tiny fraction of money compared to what I can invest presently, and reap far greater benefits with compounding over time.
Realistically speaking, if I was in this pension for my younger years I will eventually have to switch out to an option with flexibility for larger contribution but waiting means I need to pay more for the same end outcome.

I also worry if long term this will disincentivise employers from keeping pension contributions for private PRSAs because the government proposal is so much cheaper for them. They have been trending towards an overall worse contribution towards pensions for years now so this would make sense. If they genuinely wanted us to have better options at retirement, making a mandatory contribution from employers to the current options would be a much better option as far as I’m concerned. But they’re far more concerned with keeping our employers happy than keeping us out of poverty in old age.

 

[asurfpro]

@matthewaworkerforthelord As you yourself have demonstrated, anyone can avoid auto enrolment by demonstrating they're already contributing to an alternative. No one is obliged to enter AE.

AE is specifically for the hundreds of thousands of people with no pension planning in place

In addition, employer contributions to AE will ultimately exceed the typical employer contribution to a PRSA or occupational pension scheme, why would they be disincentivased by that?

Last point: higher rate tax payers lose out on tax relief to AE but lower rate tax payers gain considerably. You're having a rant about something you don't fully understand

 

[alzebetha]

@asurfpro I agree with this post. I weighed up waiting for auto enrolment or set up a pension since I’ve not employer contributions. Since I’m taxed at the higher band, my own pension is the better option. My husband is taxed at lower band and he will be better off with enrolment. He works in retail so it’s going to be a great benefit to him and his colleagues.

 

[asurfpro]

@alzebetha You might find your employer will start contributing to yours when AE comes in. On the face of it at this point, it looks like it's going to be a pain for employers to administer and I expect a lot of employers are going to look to set up alternatives to avoid it so you should have a word about receiving at least the equivalent of the employer contribution to AE

 

[alzebetha]

@asurfpro Thanks. Will do!

 

[asurfpro]

@alzebetha Did you set up a PRSA through payroll or a personal pension? I should have asked