Myth: Retirement is so far away; I don’t need to worry about it now

The world is constantly changing, innovating and adapting, and given the pace of changes taking place in all aspects of life, it’s hard to imagine what things will be like in 30 or 40 years. This far away future can be difficult to visualise, and this could be one of the reasons why you might be slow to start a pension.

The future is nearer than you think

Today, 70 is the new 50 and the current life expectancy in Ireland in 2024 is almost 83 years, a 2.5% increase from a decade prior₁. Ireland is often spoken about as a country of young people, compared to elsewhere in Europe and while these developments are all positive, we need to consider how we will fund our lifestyle for longer in retirement.

The importance of early pension planning cannot be overstated and this article explains in more detail how early planning can lead to a more comfortable retirement. Starting a pension can give you greater ownership of your future, and putting a little aside today, could help you live an active and productive retirement tomorrow. 

Compounding

Pensions are invested, availing of compounding investment growth over time, meaning there is potential for the value of your pension to increase as time progresses. So, the younger you are, the longer your pension is invested, meaning there is a better chance of a larger pension at retirement.

The sooner you start, the more you will invest into your pension over time. And the more it compounds, the more your pension fund could potentially grow. Starting early also means you don’t have to contribute as much later in life, compared to those who start later and have to play catch up.

When it comes to saving into a pension, compounding can significantly enhance the growth of your retirement funds over time. So how does that actually work?

If you save €100 a month that amounts to €1,200 saved into your pension in one year. This will then earn returns from interest, dividends or capital gains, depending on how you pension fund is invested.

For example, €416.67 invested every month over a 40 year, 30 year or 20 year period. These figures are for illustration purposes only and are not guaranteed. Source: Zurich Life, August 2024. Assumptions: Gross investment return of 4.6% based on the Prisma 4 fund. 100% allocation, 1.25% Annual Management Charge. The return is based on an investment in the fund and does not represent the return achieved by individual policies linked to the fund. 

Tax benefits

Compounding isn’t the only benefit of pension savings. Tax relief is another great advantage. In contrast to a savings account, contributions to a pension plan qualify for tax relief which could be at either 20% or 40%, depending on your tax bracket.

For example, if you’re on the 40% rate of income tax, every €100 you contribute to your pension would only cost you €60 after tax relief.

Small contributions can add up over time

How much you save into your pension is entirely up to you. What kind of lifestyle you would like in retirement and how much you can afford to save are the two main factors to consider.  A simple way to check how much you should save is to use our Pension Calculator.

You might be slow to start planning and investing in your future, especially if you won’t be retiring for another 30 or 40 years. The earlier you start your pension, the better. Even small contributions now can make a huge difference in the future, and once you get into the habit of saving each month, it becomes a lot easier. It’s always best to start your pension at a level you feel comfortable with. You can revisit this periodically to see if you have more disposable income to put into your pension if your circumstances change.

So, choose a pension that can give you the retirement you deserve. Get in touch with a Zurich financial advisor or find a local financial advisor near you with the Zurich Advisor Finder. With a wide range of options, control and flexibility, you can choose a pension plan that’s right for you.

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The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at September 2024 and may change in the future.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

Sources:

₁World Bank Group, 2023

₂Investment Excellence Award, Brokers Ireland, 2014, 2015, 2016, 2017, 2018, 2019, 2021, 2022, 2023. No awards held in 2020. Pension Provider Excellence Award, Brokers Ireland, 2023, 2022. Fund Management Company of the Year 2023 Award, Business and Finance Financial Services Awards. Life Assurance and Pensions of the Year, InBUSINESS Recognition Awards, 2024.

₃Zurich, 30th June 2024.