Video series: ‘Sofa talks’, episode 2 - Experts answer questions about pensions

Tricky question, because it’s different for everyone. As a starting point: look at your current income. Can you live comfortably on that? Take that as a starting point for your future income.

Suppose your current net outgoings are €3,000 per month. Then ask yourself: will I still have to make the same mortgage payments? Will I still have children to support? Is there anything major I want to spend money on? Then adjust the amount you used as your starting point accordingly.

This is something we’re seeing more and more: your employer supplements your income and lets you use the money to make your own pension provisions. You can then either declare this as assets in box 3 of your tax return, or you can supplement your pension income through annuities with tax relief. The advantage of this is that it is untaxed, as you can deduct it from your tax return.

There’s a small risk to it, though. If you die prematurely while you’re still building up pension capital, there won’t be enough in the pot for your relatives afterwards. So it’s sensible to take out insurance to cover this risk while you’re still building up your pension. Then, if you die before you retire, your relatives will receive a sum to help cover your lost income.

Whether it’s better or not...the jury’s still out on that one. There hasn’t been a consensus for years. What we do know is that under the old system, we often knew exactly how much pension we would get once we reach retirement age – down to the last euro. But it just turned out not to be feasible anymore, because low interest rates and longer life expectancy meant that we had to keep increasing the buffers. And that meant that existing pension benefits were no longer indexed and were sometimes even reduced.

That’s why we’re moving to a different pension system. Your pension amount will be determined by how much your employer pays, and maybe how much you contribute too, as you’re often required to pay something towards it, plus the return that it has gained over the years. This means that you have this capital on your retirement date, which you use to purchase a pension.

How do you know how much you’ll receive? The amounts contributed are in line with the sum you hope to receive. But this no longer gives any guarantees. Depending on the yield, you could end up with more, but it could also be less if there have been several bad years. Your pension statement will show an average and two other scenarios: one where things go very well and one where they don’t.

No, there is no pension being built up for freelancers. You don’t have an employer, you only have clients. This means you have to sort your pension out yourself. But the new pension legislation does touch on those who have to make their own arrangements. There is now broader scope for building up a decent pension with tax relief. In fact, it has more than doubled. And that is what freelancers – but also people who are not directly employed, such as entrepreneurs with a sole proprietorship or a general partnership– can take advantage of.

It’s always good to check. Not just today, but also further down the line, because pension plans tend to change. And no two pension plans are the same. How much is your employer contributing? How much are you putting in yourself? That’s what determines the amount of capital you build up. Plus, what return is your capital generating? It’s good to keep your finger on the pulse and check how much is in your pot every now and then. And how much more you need to retire with a decent pension.