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Defined Contribution Plans: How much should I save for my retirement?

When you join your company pension plan, you need to decide how much to save into it. The amount you contribute into your pension plan, combined with any investment growth, will determine the size of the pension fund you receive at retirement.

The general rule of thumb is to aim for a pension that is equal to about 1/3 of your current salary. This amount will be paid, along with the State Pension that you should be entitled to at retirement.

State Pension

It is even more important now to provide for your retirement, considering that the age at which you will be entitled to claim your State Pension has been changed.

State Pension payable:

From age 66 from 1st January 2014

From age 67 from 1st January 2021

From age 68 from 1st January 2028

The savings you make now will provide you with a pension income from the age you retire from the scheme. 

It also bridge any years between your scheme retirement age and the age from when you will receive the State Pension.

Your Pension Contributions

If you are aiming for a pension income of a third of your current salary, then the amount you need to save right now will depend on how close you are to retirement.

Please refer to your Member Schedule (issued with the member booklet when you join the company pension plan) which will detail the amount or percentage of salary that both you and your employer have agreed to contribute to your pension plan.

It is important to remember that this is just the minimum amount that should be paid into your pension.

Unless you are very young when you start to contribute you will need to put extra money into your pension in order to have a pension income of one third of your salary when you come to retire. Paying more money into your pension is called making Additional Voluntary Contributions (AVCs).

See the table below for more information on how much you should contribute to your pension. The tables below indicate the total percentage of salary that needs to be saved into your pension plan, based on age, to achieve a pension of approximately a third of your salary when you retire. This percentage can be made up by your pension contribution as well as your employer's pension contribution.

So for example, if you are aged 35 and your employer is contributing 6% to your pension, you then need to save 19% to make up the required 25% total contribution, to target a pension of one third of salary, assuming you retire at age 65. This may seem like a lot but tax relief is available, particularly if you are paying tax at the higher rate.

Retiring at age 65

Start contributing at age % contribution per year of salary required for pension of approx. 33% of salary % contribution per year of salary required for pension of approx. 50% of salary
25 18% 27%
30 21% 31%
35 25% 37%
40 30% 45%
45 39% 58%
50 51% 77%
55 78% 115%
60 155% 231%

Retiring at age 60

Start contributing at age % contribution per year of salary required for pension of approx. 33% of salary % contribution per year of salary required for pension of approx. 50% of salary
25 24% 36%
30 29% 43%
35 35% 53%
40 45% 67%
45 59% 88%
50 90% 135%
55 179% 268%

Note: These illustrations assume an investment return before retirement of 5.4% per year up until 20 years before retirement, gradually reducing to 3.13% over the next 19 years. The reduction reflects the gradual movement in asset mix of someone invested in the Personal Lifestyle Strategy finishing with a final fund mix of 75% Pension for Life fund and 25% Tax Free Cash fund and salary/contribution growth and inflation of 3% per year. These rates are for illustration purposes only and are not guaranteed. These figures allow for the government pension levy of 0.15% in 2015 assuming contributions start in January 2014. The pension levy will be deducted at the end of June 2015. Actual investment growth will depend on the performance of the underlying investments and may be more or less than illustrated. This illustrated income is assumed to be paid monthly in advance, payable for life (and payable for at least a minimum of 5 years regardless) and increasing by 2% per year during payment. This table is based on annuity rates calculated in line with guidance from the Society of Actuaries in Ireland.

WARNING: Past performance is not a reliable guide to future performance.
WARNING: These figures are estimates only. They are not a reliable guide to the future performance of this investment.
WARNING: If you invest in this product you may lose some or all of the money you invest.

 

Making AVCs - pay more into your pension plan

Your 'Member Schedule' or 'Member Booklet' will set out the minimum pension contribution that you must make, but you have the option of paying extra pension contributions into your retirement fund. These extra pension contributions are known as Additional Voluntary Contributions. AVCs may be a good option for you if you want to increase the value of your pension fund.

Find out more about AVCs:

 

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