Starting a Pension in Ireland: A Step-By-Step Guide

We understand setting up a pension can seem like a daunting prospect. You may find yourself pushing it further and further down the priority list. The good news is that it has never been easier to plan for your future! With the right advice, you can start to plan for the retirement you hoped for.

Following this article’s step-by-step instructions will help ease the stress of getting started, so let’s dive in.

Understanding Pensions

Knowledge is power! To start a pension fund, it is important to understand what type of pension is available to you. This depends on your employment status. Are you a PAYE employee, a director of a company, a sole trader or self-employed? Other circumstances such as your age will also influence what plan is right for you. So, let’s break down the different pensions to see where you fit.

Types of Pensions

1. Occupational Pensions & PAYE Employees

Company pension schemes are set up by an employer to provide “retirement and death benefits for their employees”. At the moment in Ireland, an employer is currently under no obligation to provide occupational pension schemes for their employees. Nonetheless, they do have to ensure that each employee has access to a Personal Retirement Savings Account (PRSA). Be sure to check with your employer if you’re uncertain about what is available to you as a PAYE employee.

The government’s plan is to introduce pension auto-enrolment in 2024. Nearly 750,000 workers will be automatically enrolled in a workplace pension scheme. The scheme will consist of an employee contribution, matched with an employer contribution and a state top-up. For example, for every €3 saved by a worker, an employer will contribute another €3 and the Government €1. Effectively this means for every €3 an employee saves in the scheme they will get a further €4. For more detail read Pension Auto Enrolment.

2. Personal Pension Funds for Sole Traders and the Self-Employed

If you’re self-employed, you will need to set up your own pension, also known as a personal pension or private pension. A broker, such as Campion Insurance, can advise on how to set up a private pension, building a plan that suits your current needs and your future retirement plans. It’s vital that you take ownership of your future and set the wheels in motion for a happy retirement!

3. Executive Pensions Plans for Company Directors & Business Owners

Senior management and company directors are the primary recipients of executive pension plans. However, theoretically, anybody who is taxed under Schedule E qualifies. If this, is you, check out Pension Support Line, for more information.

Now that you’re up to speed on the different pension schemes available in Ireland, let’s look at the many reasons you should start a pension today.

Reasons to Start a Pension

Here are 3 reasons you should set up your own pension.

1: Retirement Income

Inevitably, when you retire, you will experience a drop in income, which if not planned for, will leave you in a stressful and difficult situation.

Here’s an example: Just imagine you’re retiring today and are earning the average working annual salary of €44,202 or €3,683 per month (gross salary). If you didn’t have a pension plan and were reliant on the full State Pension that you’re entitled to, your annual income would fall to €13,172 per year or €1,013.20 per month. This means your monthly income would drop by over €2,500 per month.

The solution to avoid this is to plan for your retirement, you can do this by talking to a Financial Planning expert.  

NOTE: Many pension plans consider the State pension which is deemed a component of the overall pension package promised to employees upon retirement under an integrated pension scheme.

2: Life Expectancy

People, in general, are living longer. This means that you may need to fund your retirement for longer than previous generations, so the sooner you start the better position you will be in when you retire.

3: Tax Benefits

There are currently tax reliefs that make starting a private pension more attractive than ever. For example, if you pay the highest rate of tax, a €100 contribution to your pension fund will only cost you €60. For more information on percentage limits, visit the Revenue website.

You can also get a ‘tax-free’ lump sum when you retire. The majority of workers will be eligible to take 25% of their total pension pot as a tax-free lump sum. Depending on your arrangement and whether you’ve taken lump sums from other pensions, the amount you take will vary. Currently, the maximum tax-free pension lump sum is €200,000. Depending on your circumstances this lump sum could pay off outstanding debt such as a mortgage.

When Can You Start a Pension?

Today!

We all think we will never grow old (until we do), and there is always a more pressing immediate financial hurdle you are trying to overcome. However, consider the following:

Based on the person paying a 20% rate of tax:

Starting your pension at the age of 25 compared to 35 will give you an additional €118 every month from your pension and compared to a later start age of 45 it will give you an additional €220 each month.

* Excludes State Pension and based on person retiring at 68

Based on a person paying a 40% rate of tax:

For those on the 40% rate of tax, a €250 monthly contribution will cost €150, and again the earlier you start the bigger the projected monthly income and lump sum benefit at retirement.

* Excludes State Pension and based on person retiring at 68

It is financially less costly and over the longer term more beneficial if you start a pension today rather than wait till next year. You can make the process easier by talking to a Campion Insurance Financial Expert.

Step by Step: How to Start a Pension

So, if you have ever asked yourself “is it too late to start a pension?”, the answer is no! If you don’t know where to begin, follow these steps:  

Step 1: Seek Advice

A key aspect of setting up a pension fund is to get sound financial advice. Speak with one of our financial planners about what options are available for you and how to navigate through the process. It can feel like an overwhelming process at first, however, with Campion, we will be in your corner each step of the way and will help you make the best decision for you and your future.

Step 2: Decide on a Plan

Once you have sought advice, you will be equipped with the knowledge to decide on which plan is right for you. Whether you’re self-employed, a PAYE employee or a director of a company, we will have the plan to meet your specific circumstances.

Step 3: Find Out How Much You Could Save

To give yourself an idea of how much money you can save each month, use our pensions calculator.

The amount you should put toward your pension will depend on your individual situation. It’s important to consider your financial situation when determining how much to contribute to your pension, as well as your projected income needs in retirement and the time you have until reaching retirement.

Step 4: Pick an Investment Strategy

Typically, with investments, the more you risk, the higher the return. At Campion Insurance when we are building your pension plan, we will discuss your investment strategy options, and the level of risk you are comfortable taking. It is important to remember that investments can rise as well as fall, and you should always be comfortable with the level of risk you are taking.

Step 5: Gather Documentation

As you might expect, there are various pieces of information that will be needed including employment details and financial information. These requirements include:

-Proof of identification

-Payslips & utility bills (within the last 3 months)

-Account details (BIC & IBAN)

-Employment details (including start dates)

-Company Registration Number and VAT number (if applicable)

-Details of any pre-existing pension

-Confirmation of which pensions scheme you choose

-Application forms, compliance documents and statement of suitability all for signing

As people are becoming more knowledgeable about pensions across the country, there is a yearly increase year to year in those seeking a pension arrangement. Approximately, 60% of workers in Ireland have some type of pension.

The vast knowledge and expertise of a Campion Insurance financial advisor means you can rest assured knowing that you’re in the best hands. To start your pension today contact one of our teamon 0818 297 600.

Suggested Further Reading

Combining Pensions Guide

How a Pension Can Reduce Tax