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Pension investments often span more than 30 years, so it’s reassuring to seek out a provider that has shown a consistent and robust investment framework through all sorts of economic ups and downs.
When it comes to pensions, no other savings vehicle gets the star treatment from Revenue that pensions do. That is, tax relief on contributions, tax free investment growth and a tax free lump sum waiting for you on retirement. But pensions are a long term savings vehicle, and the longer you save, the better. Over all that time it is your pension provider’s investment strategy that works diligently away in the background, doing its level best to make sure the value of your pension grows.
It can be hard to choose a pension provider, but if there’s a rule of thumb, look at their investment track record over time. While it is absolutely true that the value of investments can go down as well as up, and that past performance is no indicator of future returns, knowing a pension provider’s track record should play a part in informed decision making.
Get your pension working for you.
Pensions are designed to benefit from compounding. What that means is that, if you take a sample annual growth rate of 5 per cent, if you contributed €100 in 2021, it’s worth €105 at the end. That means you’re starting off with €105 next year and you’ve more money growing for you in your pension pot.
But the growth rate depends on what your pension is invested in. Insurance companies typically offer a variety of funds based on a different asset classes, such as equity or property. The vast majority of pensions are invested in multi-asset funds, comprised of different asset classes. The benefit of these is that diversification is built in. This matters because different asset classes perform better at different times, depending on what is going on in the world.
In recessionary times investors tend to move to safe haven assets such as cash or bonds, which tend not to give such great returns but are reckoned to offer better investor protection. In good times, equities are expected to give greater returns. If assessing markets and making investment decisions accordingly is outside your comfort zone, looking for a pension provider for whom active management is a core competency can help.
Pension investments often span more than 30 years, so it’s reassuring to seek out a provider that has shown a consistent and robust investment framework through all sorts of economic ups and downs, over the long term.