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What benefits are there to having a retirement account called a "pension" in Ireland, as opposed to simply making investments of one kind or another for the same purpose? I am not really asking about the payback as such, more about the security and nature of the arrangement; in that I understand that a pension carries with it certain other benefits, for instance my financial advisor told me one thing about tax breaks based on pension payments and also something about an individual who went bankrupt and though his creditors were able to take his house and businesses, they couldn't by law touch his pension.

I am in Ireland so the law may be different per country, so I am really just asking generally, are there other benefits similar to these, or what is the difference between having bona fide pension and say if i was good at playing stock market or something like that?

I stared a pension recently and at the end of one year I had the exact same as what I put in, plus €4. Further to this while I believe that the pension I am on is with a good company, is there any guarantee that I wouldn't end up with less than I put in?

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Please define what you mean by "pension". Is this a fund where you pay in and money is invested for you to take out on your retirement, or is this where you pay money on a regular basis and the company promises to pay you a fixed income when you retire? –  DJClayworth Sep 2 '11 at 15:48
    
@DJClayworth I've seen "pension" used this way for other questions from the UK, but I haven't gotten a clear answer on how a UK "pension" compares to a US 401k or US "pension". –  Alex B Sep 2 '11 at 15:58
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@DJClayworth by pension I mean a fund where i pay money in and money is invested for me to take out on retirement –  byronyasgur Sep 2 '11 at 16:05
    
@Alex B ... other questions from the UK ? Ireland is not in the UK ;-) . I have no idea how they do things over there actually but we are often similar allright. The same term in Ireland governs whether an individual pays into a fund on their own or via their employer. There are differences in taxation maybe I think but ?? –  byronyasgur Sep 2 '11 at 16:08
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I probably should mention that I am self employed. Essentially this is an arrangement between me and my financial advisor/broker. We have selected a company who invest my money for me and pay it back later. –  byronyasgur Sep 2 '11 at 16:12

2 Answers 2

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As you point out, the main benefits of a pension/retirement account over a traditional cash/taxable account are the legal and tax benefits. Most Western countries establish a specific legal definition for an account which is often taxed less or not at all relative to taxable accounts and which contains some protection for the owner in case of a bankruptcy. The typical drawbacks for investing within such structures are limited investment choice, limited withdrawal rights (either in terms of age or rate of withdrawal), and maximum contributions. The benefits are usually very clear, and your decision whether or not to open a pension/retirement account should depend on a careful weighing of the benefits and drawbacks.

As to whether you may end up with less than you started, that depends on what you invest in. As with all of finance, you must take more risk to get more return. Although the choices inside a pension/retirement account may be worded somewhat differently, they are usually fundamentally no different than some of the most popular investments available for ordinary taxable accounts.

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thanks for the information - actually though it's discontinuing my pension account that i'm considering - as opposed to opening up one. I dont really believe that the stocks shares and currencies that back the pensions funds are going to go anywhere but down over the next decade so i'm thinking of investing in physical gold and/or silver instead. –  byronyasgur Sep 6 '11 at 19:47
    
@byronyasgur There may be serious adverse tax consequences to such a move if you are relatively young. Consider transferring the funds to another pension fund which allows more flexibility, such as investing in any stock, then you can own silver or gold (although I wouldn't recommend it) in ETF or other form. –  Tal Fishman Sep 6 '11 at 19:54
    
Yes. I did think of that but the problem is that EFT silver and gold is not the same as physical there is no guarantee to it in the face of any kind of financial collapse, it's the same as stocks and shares or FIAT currency. –  byronyasgur Sep 6 '11 at 19:59
    
... actually what type of tax consequences do you mean. I know that I wouldn't qualify for tax breaks on physical gold but it is exempt from VAT here. –  byronyasgur Sep 6 '11 at 20:05
    
@byronyasgur I'm talking about penalties on early withdrawal of pension assets. –  Tal Fishman Sep 6 '11 at 21:33

Here's an Irish government publication that should give you some background information to get you started.

In a nutshell, you get tax benefits, but cannot withdraw money without penalty until you reach retirement age.

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Thanks for that - I cant up-vote yet sorry. –  byronyasgur Sep 6 '11 at 19:49

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