Pension Investment Options.

State pensions are designed to provide a basic level of retirement income. The standard state old-age pension for a single person is just under €13,000 per year.

For many this figure represents a significant drop in annual salary and may not be enough to sustain a retiree’s pre-existing standard of living. You can read more on that divide here.

A pension investment, be it in the form of a pension fund or the purchase of an asset with interest potential, can contribute to a far more viable financial situation in retirement.

The primary pension schemes are:

• Defined benefit (DB) pension funds which offer a specific, stable income in retirement, but one that may have a lower ceiling.
• Defined contribution (DC) schemes which fluctuate depending on the success of your investment and the amount of money you put into it.

Today in Ireland, it can be difficult to find a DB pension scheme that will fulfil your financial needs when you retire, so DC alternatives are often necessary.

There are plenty of different ways to invest your pension but some of the more popular avenues are:

• Property is one of the more potentially lucrative options. Investing in property is an often desirable pension investment and it can offer a means of avoiding Capital Gains Tax on your earnings.

• Equity concerns the buying and selling of company shares. The risk with equity investments, naturally, is seeing the value of your shares fall. Rising equities, however, can be highly lucrative and offer a major contribution to your pension.
• Bonds are loans, often to governments or major companies, to be paid back at a later date along with periodic interest payments. They are thought to be lower risk than equities, but with a lower potential ceiling of returns.
• Commodities such as gold, silver, aluminium or petroleum can offer alternative options for pension investments. Again, the value of commodities is subject to often unpredictable change, so it can be a high risk, high reward recourse.
• Cash is a short term, highly accessible financial investment that is unlikely to reap enormous interest. Cash investments tend not to decline massively in value, but they are not completely without risk.

Approved pension schemes can offer tax relief on contributions to the scheme. Tax is then paid on the pension funds when you receive them.

You have the option of Cashing in Your Pension Early in Ireland which can also entitle you to a lump sum upon turning 50.

Tax can be paid on your pension in a lump sum when you receive it too, but up to €200,000 of that can be tax-free.

To find out if Cashing in your pension early is the right decision for you, get in touch with National Pension Helpline today.