While starting a pension as early as possible is the ideal, many people don’t begin their careers until their late 20s or even later and spend many years getting to a reasonable income level. Medical and legal professionals and entrepreneurs often find themselves in the same position. But there are ways they can make up for lost time.
Many of us put off saving into a pension, particularly when the cost of living is high and there are other immediate priorities such as childcare, mortgage, rent, and education costs, says Sinead McEvoy, head of retirement solutions, Standard Life. “However, even if you’re in your 50s or 60s, it’s not too late to start saving into a pension for the first time.
“You may still be working and saving for years to come and can benefit from long-term tax-free growth which will increase your retirement pot.”
McEvoy says if you are an employee, you may be able to avail of employer contributions in addition to your own. “You will also benefit from tax relief on your contributions, a tax-free lump sum at retirement, and you can leave your pension savings invested whilst also drawing an income from them through an ARF (approved retirement fund) or vested PRSA (personal retirement savings account).
Supporting Ireland’s energy transition with battery energy storage solutions
Nevo Electric Vehicle Show set to electrify Dublin with new models and exclusive deals
What are the opportunities and challenges in an increasingly multigenerational workforce?
Choose a career that will put a smile on your face
“Remember, the more you can save in the run-up to retirement, the more you’ll have to live on when you eventually stop working.”
While it is always best to commence your pension saving as early as you can, it is never too late to open a pension, says Gavin Moran, head of wealth management, at WTW in Ireland. “A pension remains the most tax-effective way to save for retirement and is a decision that you will not regret.”
Statistical analysis by the Central Statistics Office shows that workers whose occupation was classified as professional had the highest pension coverage rate (83 per cent), which may be down to a higher disposable income, says Moran. “There is an issue for certain professions such as solicitors and dentists who may not be allowed to incorporate and must practice as a sole trader or partnership.
“For these business owners, they are restricted to only being allowed to contribute up to the maximum age-related personal contribution rate when compared to a company owner who has much more scope for company contributions.”
The precarious nature of entrepreneurship can make prioritising a pension difficult, says McEvoy. “Business owners understandably pour their efforts and earnings into maintaining and growing the business. However, pension planning for this cohort has arguably never been as readily supported with recent changes to the pensions landscape providing compelling choices such as the PRSA.
If you’re thinking of catching up, you’ll know that pension contributions are a tax-effective way to save for your financial future, particularly for higher earners, says McEvoy. “For those in the higher tax bracket, every €100 you save, is costing you just €60. What most people don’t realise is that as you get older, Revenue allows you to save a higher proportion of your salary into your pension and avail of income tax relief. This can make a big difference to the final value of your pot.
“For example, when you’re aged 40-49, you can save up to 25 per cent of your salary tax efficiently. This increases to 30 per cent for those aged 50 to 54 and 40 per cent for those aged 60 and over.”