The one thing you can be certain about is that the tax/pension deadline will appear again in 2019, and you will face the same challenges of paying your tax bill and looking for ways to reduce it. Making lump sum pension contributions is a great way of reducing your tax bill, but it also can be a significant drain on your cash flow. Furthermore, as an employee, you may also be leaving it to the last minute to make an AVC.
There is a better way…
Rather than face that cashflow drain trying to come up with a lump sum pension contribution, it makes far more sense to spread the pension contribution throughout the year. Starting now… right now.
Here are three good reasons why it makes a lot of sense to make regular, smaller pension contributions throughout the year rather than one big payment at year end.
Easier on cashflow
Everything is easier when we save for it. Whether you are putting a few euro aside planning for Christmas expenses, saving up for your summer holiday or indeed making a big purchase such as a new car or home improvements, saving for these always makes life easier in the end. The exact same principle applies to your pension.
Making a regular contribution amount every month (for example say €1,000 per month) is far easier than coming up with €12,000 at the end of the year, particularly as you may also have a tax bill to pay then! After a while of paying a regular amount out each month, you simply begin to notice it less and less as it becomes like another regular outlay. As a result of more money going out each month (but remember it’s going to you!), you are also much less likely to simply waste any surplus cash left over each month.
Finally, the good news too is that if you hit a blip with your cashflow, you can always take a break for a month or two from your pension contribution.
You’re paying yourself first
When you leave your pension contribution to year end, the amount tends to be driven by available funds at that point. All of your other expenses are paid at this stage and your tax bill has been looked after. Your future financial happiness that is achieved by your pension contribution is last in line – it is decided by what’s left over!
Starting today to make that regular pension contribution puts you at the top of the queue. This is known as automatic saving as it simply happens each month, rather than you having to actively do something each month. You’re the first person looked after, and not the last. Money goes into your pension fund each month, increasing your own future financial firepower.
Maximise investment potential
There are advantages to making regular or monthly pension contributions. The first is you will enhance the value of compound interest. We already know that compound Interest is beneficial, due the exponential value of interest on interest.
If we go back to the earlier example of €1,000 per month Vs €12,000 at the end of the year – consider this – for the first 6 months anyway, there may have been interest or growth on each €1,000 invested, adding greater compounding value than to the €12,000 in a lump sum.
This also works another way however. We know that when investing in the markets there are fluctuations in value up and down over the course of the year. Regular contributions may invest in both of these scenarios and consequently purchase more shares or units in the year (increasing value) than a once off lump sum.
Today is the time to act! Set up that regular pension plan and look after your most important financial challenge – your future happiness. Whether you are self-employed or an employee looking to boost your retirement funds, CPAS has a solution for you.
PLANNING FOR THE FUTURE
As in life, there are many variables and changes. Planning for retirement and protecting your financial future involves forming expectations about income and expenses over the rest of your life, based on present assumptions. As the pension administrator for pension schemes in the construction industry, we have a range of solutions to help you prepare and protect your future investments. Whether you are self-employed, running a large company with multiple staff requirements, looking for life and income protection, we can help.
For more information and to find the right solution for you, contact our team for a no obligation discussion. Our team of financial specialists will put you in touch with the right team member. No obligations, no hidden fees, no jargon – just a straight forward chat to help you secure your present and your future.
Contact us via email (info@cpas.ie) or by phone (01) 223 4949
