The new October 31st deadline for tax relief on pension contributions makes investing in retirement funds very topical this month. In addition, the substantial tax savings to be achieved on pension contributions make this type of investment extremely attractive.
However, it is important to bear in mind that the purpose of this tax relief is to encourage people to part with their cash for the long term. When this pension funding decision has been made, the Irish investor then has a large range of investment options from which to choose. An aggressive investor would opt for more growth-oriented equity exposure, while a more cautious investor would prefer to have some element of capital guarantee incorporated into their funding.
The first step towards making the right choice is to seek independent advice from an authorised adviser, regulated by the Central Bank. This broker/consultant will then provide independent advice and recommend the most suitable product.
The adviser will carry out a detailed analysis of your precise financial position, and will help you identify your investment goals and objectives. You can then evaluate your own investment risk profile, before deciding on the most appropriate funding approach to meet your needs.
It is important to fund for retirement on a "salary-related" basis. This involves identifying the funding level that is required to target your retirement income, and then maintaining your contributions at this funding rate, as your salary increases in the future.
Any additional contribution made into your pension fund above this level will serve to enhance your retirement income, or may provide an opportunity for you to retire earlier.
The choice of fund manager is a crucial decision, which should be made in conjunction with your professional adviser. It is important for you to consider the investment style adopted by a fund manager, before making this choice. For example, a "value manager" will take a different approach to a growth-oriented fund manager.It is also possible for more aggressive investors
to invest directly in portfolios operated by Irish stockbrokers. These would generally contain individually selected stocks and shares, but could also be invested more cautiously into gilts and corporate bonds.
Contributing into a pension plan is by definition long term and suits equity-based managed fund investment for younger people. The timing of the investment is usually a cause for concern: people wonder when is the right time.
Analysis has shown that the time period of the investment is more important than the timing of entry to a fund, when investing over the long term. It is therefore essential to make regular contributions at the appropriate level into the fund of your choice.
