How pensions work

Life insurance and investment companies are the main providers of pension plans in Ireland. They employ fund managers to invest your contributions in one or more pension funds.

 

These funds are used to buy and sell assets, such as sharespropertybonds and cash. There are many types of pension funds and each fund is invested in a different mix of these types of assets. For example, a typical pension fund might have:

  • 50% of its assets invested in shares
  • 30% of its assets invested in bonds
  • 15% of its assets invested in property
  • 5% of its assets held as cash

The value of the fund rises and falls, depending on the performance of the shares, property and other assets in which it invests. The fund is expected to grow by a certain amount each year but this is not guaranteed and fund values go up and down over the years. The value of your fund will be reduced by any fees and charges you have to pay.

Your pension fund is a long-term investment that you should ideally keep for 20 to 30 years or longer. This should give enough time for your fund to recover growth if it falls in value. Generally, the longer you keep your contributions invested, the more likely your fund will grow in value.

When should I start my pension?

The earlier you start saving for retirement the better. This will give you more time to make contributions and more time for your fund to grow in value. Of course you have to balance this with other financial needs, such as buying a home, providing for your children’s future etc. Remember, you can get income tax relief on your contributions, so the net cost to you will be lower.

If you don’t start a pension fund until your 40s, you will have less time to build up your fund. So you will have to put more money in to give you the same pension you would have had if you started saving in your 20s or 30s.

If you are older when starting a pension, don’t let this put you off, as it is better to have a smaller fund than no fund at all.

Use the Pensions Authority’s online pension calculator to help you estimate the yearly amount you need to contribute to meet your pension target at the age of 65.

When can I take my pension benefits?

You can get more information in our section on retiring.

Pension fees and charges

There are generally two types of charges:

  • Initial charges to set up your plan, such as the allocation rate and entry charge.
  • Ongoing charges to manage your pension plan. These can include a monthly policy fee, bid-offer spread and a yearly fund management charge

These charges can have a significant effect on the value of your pension at retirement, especially the ongoing yearly charges, which are calculated as a percentage of the value of your fund. As your pension fund grows, the charges also increase.

There can be a big difference in the charges for different pension plans. Remember that pensions with higher charges may or may not perform better than similar pensions with lower charges.

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