Why do I need a pension?

In Ireland, the pursuit of financial advice is not merely a prudent decision; it’s a transformative one. Recent studies indicate that individuals who seek professional financial guidance can potentially increase their pension savings by an impressive 50%. This substantial enhancement in retirement funds underscores the value of expert financial planning. With the complexities of investment options, tax implications, and retirement strategies, navigating the financial landscape can be daunting. However, those who engage with financial advisors benefit from tailored advice that aligns with their long-term retirement goals, leading to a more secure and prosperous future. In contrast, individuals who forego such counsel may find themselves at a significant disadvantage, often resulting in a less robust pension pot.

Navigating the financial landscape, especially when planning for retirement, requires a strategic approach to avoid common pitfalls that can undermine one’s financial security.

• One of the most critical mistakes is not starting early enough, as time is a crucial factor in leveraging the power of compounding interest.
• Additionally, failing to save adequately, often due to underestimating the amount needed for a comfortable retirement, can lead to financial shortfalls.
• It’s also essential to avoid putting all your investments in one place, which increases risk, and to be mindful of high fees that can erode your savings.
• Overlooking tax-saving opportunities and withdrawing from retirement funds prematurely can trigger penalties and reduce long-term growth.
• Lastly, not planning for healthcare costs or supporting adult children financially can significantly strain retirement funds.

By being aware of these common errors and seeking professional advice, individuals can make informed decisions that bolster their financial well-being in their later years.
In Ireland, the average pension pot for retirement has seen a gradual increase over the years. As of 2024, the average pension stands at €111,000 (Brokers Ireland report). This figure represents a modest rise from previous years, reflecting a growing awareness and conscientiousness regarding pension contributions among the Irish population. Despite this positive trend, there remains a significant gap between the average pension and the amount many believe they will need for a comfortable retirement. Surveys indicate that Irish citizens would like an average of €433,000 in their pension pot by retirement age, suggesting a disparity of €322,000 from the current average. This highlights the importance of strategic retirement planning and the potential need for additional savings or investments to bridge this gap. With nearly 60% of the population having some form of pension coverage, it’s crucial for individuals to assess their retirement goals and consider using tools like pension calculators to ensure they are on track to meet their desired retirement income.
As Albert Einstein said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Pensions are not just a means of securing a stable income for retirement; they are also a powerful tool for wealth accumulation through the magic of compound interest. This financial principle is the process by which a sum of money grows exponentially over time, as the interest earned is reinvested to earn additional interest. Pensions in Ireland uniquely benefit from compound interest because the contributions grow tax-free throughout the investment period. This tax advantage allows the invested funds to compound more efficiently than other investment types that are subject to taxes like Exit Tax or Capital Gains Tax.
Starting a pension early in one’s career can significantly enhance the benefits of compound interest, as the longer the investment period, the greater the potential for growth. With the right financial planning and consistent contributions, Irish pensions can be a formidable vehicle for building wealth, ensuring that individuals can enjoy a financially secure and comfortable retirement.
Pensions continue to be a significant avenue for tax-efficient savings. The government incentivises retirement planning by offering generous tax reliefs on pension contributions. Individuals can claim income tax relief at their marginal rate on contributions to occupational schemes, Personal Retirement Savings Accounts (PRSAs), and other qualifying pension plans. This means that a portion of the income invested into these pension schemes is effectively returned to the taxpayer, reducing the overall tax burden. Moreover, certain lump sum withdrawals from pensions may also be tax-exempt, further enhancing the appeal of pensions as a tax-efficient investment strategy. While other investment vehicles may offer tax-free returns, pensions stand out due to their dual benefits of tax relief on contributions and potential tax-free growth over time.
It’s important for individuals to consult with financial advisors to understand the specific tax benefits applicable to their circumstances and to maximize their retirement savings in a tax-efficient manner. The landscape of pension taxation can be complex, but the underlying principle remains: pensions are a cornerstone of tax-advantaged retirement planning in Ireland.
As the Irish population ages, the importance of a well-funded retirement becomes increasingly paramount. Thus, the message is clear: seeking financial advice is a critical step towards ensuring a comfortable and secure retirement.
As always, we strongly discourage savers from making the decision alone.
The best thing to do is to get financial advice, as the financial adviser will be able to make sure the pension saver achieves the right outcome.

Carey Corbett Financial Services are experts on personal and commercial insurance, pensions, investments, mortgages, protection and financial planning.
Call Tommy or Donal 065 689 3540 or email info@careycorbett.com