As we navigate through our careers, it’s crucial to plan for the future, especially for our retirement. In Ireland, pension funding plays a vital role in ensuring financial stability and comfort during retirement years. Gavan Ryan of Financial Equality Services explains why pension funding is important, the tax relief available, and some guidance on how much you should set aside each month.
Why putting money aside is Important
Financial Security: Pensions provide a steady income during retirement, helping to maintain your standard of living when you are no longer earning a regular salary. With people living longer and leading more active lives in retirement, having a reliable income source is more important than ever.
Supplementing State Pension: While the State pension provides a basic level of income, it may not be sufficient to cover all your needs. A personal or occupational pension can supplement this, ensuring you have enough to enjoy your retirement fully. The State Pension age of 66 is projected to rise in the future, having a pension yourself means you can draw benefits before the government pays out.
Tax Benefits: Contributions to pension schemes are tax-deductible, which means you can reduce your taxable income and save on taxes while securing your future. Tax relief is available at up to 40%, depending on your income.
Protection for Dependents: Pension schemes often include benefits for dependents, providing financial security for your loved ones in the event of your death.
Tax Relief on Pension Contributions
In Ireland, the government encourages pension savings by offering tax relief on contributions. Here are the key points:
Income Tax Relief: You can get income tax relief on your pension contributions at your highest rate of tax. This means if you pay tax at the higher rate, you get relief at that rate.
Age-Related Limits: The amount of tax relief you can claim depends on your age. For example, if you are under 30, you can claim relief on up to 15% of your earnings. This percentage increases with age, reaching up to 40% for those aged 60 and over.
Annual Earnings Limit: There is a cap on the amount of earnings that qualify for tax relief, currently set at €115,000.
How Much Should You Save?
Determining how much to save for your pension can be challenging, but a good rule of thumb is to save a percentage of your salary that aligns with your age and retirement goals. Here are some guidelines:
Start Early: The earlier you start saving, the less you need to put aside each month. Compounding interest means your savings will grow more over time.
Percentage of Salary: You should put aside what you can afford but, a good rule of thumb is to plan on saving between 10% to 15% of your salary for your pension. This can vary based on your age and retirement plans.
Adjust with Age: As you get older, you might need to increase your contributions. For example, someone in their 20s might start with 10%, while someone in their 40s might aim for 20% to catch up.
Practical Steps
Seek Professional Advice: Qualified financial advisers can demystify pensions and explain how best to fund and invest your pension.
Assess Your Current Savings: Look at what you already have saved and determine if you are on track to meet your retirement goals.
Increase Contributions Gradually: If you can’t start with a high percentage, begin with what you can afford and increase it gradually.
The best advice is to start planning today to enjoy peace of mind in the future. Just get in touch with us at Financial Equality Services to get started.
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