I am a 24 year old male living in an EU country, with a gross salary (before tax) of €26,000. I am very new to the world of investment and do not have any experience - at best, I could say that I know the basics.

Other than a home loan with my fiancee, I do not have any debt or other loans. I have a life insurance policy, and keep reading that after sorting out debt, a pension plan is the next step one should take. As a brief background regarding my country, we do not have anything equivalent to a 401K in the US, and employers generally do not contribute towards pension plans. It is therefore up to the individual to take care of this. We do have state pensions, however the general consensus is that by the time I reach retirement age (I believe it is 65), they would not exist anymore.

I have been to two of the top companies which offer retirement plans, and they both seem to have offered similar options. I have attached a scan of the document which one of these institutions supplied me with, showing an overview of the plan which was most suited for me. Both of these top institutions are banks, one if which is world-renowned, so I am dealing with institutions of a certain calibre.

The reason I am writing this question is because I personally do not feel that the return on the attached plan is worth it. Some general stats:

  • 1000 eu per year for 40 years
  • Government provide a tax rebate of 150eu per year
  • Can cash the policy when I’m between 50–75 years old which would be split through a 30% lump sum and monthly installments for the remaining 70%
  • I can stop paying for a maximum of 5 years throughout the whole term with no penalty – they call it a “payment holiday”
  • If I die before the fund expires, they will pay 101% of the value of my policy to my beneficiaries
  • After the first 5 years I can transfer this fund to another provider
  • I cannot touch the money until I am between 50-75 years old, as otherwise there will be charges

So to summarise, the way I see it, I would be putting in €40,000 and over 40 years getting a return of around €75,000 (could be more but it could also be less - depending on performance). I personally (with my lack of investment knowledge) feel that with factors such as cost of living increases over 40 years, and not knowing how investments would perform over 40 years, the risk is not worth the outcome.

Since I am no expert, I thought I would ask here. Is it worth going for this plan in my case?

Proposed Retirement Plan

  • Which country is this? Typically people use pension plans because governments offer tax rebates, basically treating it as a subsidised investment. If you get that then it's worth having a pension plan (provided you can invest in the general stock market at low fees). Otherwise you can just set up your own mini fund just for yourself by opening a brokerage account. In the document, what is the "bonus rate" and how is it determined? Is it based on stock market returns? – SMeznaric Mar 13 '17 at 12:55
  • I believe it is based on how the investments perform, so only shown as means of an example. The country is Malta. – Finance Mar 13 '17 at 13:04
  • I would ask the following: Do you have any control over what investment they make? Is it at least transparent to you? Do they tell you what fees they charge? Can you use pension plans from elsewhere in the EU, in which case you are able to consider a larger array of competitors to find a good one. – SMeznaric Mar 13 '17 at 13:07
  • I would ideally like to use a pension plan which is local. They also provided a document with all the fees they charge, so yes that is well communicated. My biggest gripe is that turning €40,000 to €75,000 in 40 years seems to have a very small return, which will surely not be enough to cover a pension. I was under the impression that pension plans are supposed to have a better return than that - atleast enough to be able to live on the amount for your retirement years, like a state pension. – Finance Mar 13 '17 at 13:17
  • They're not actually turning €40000 into €75000 over 40 years because that would require you to invest €40000 up front but you're actually going to do it by investing €1000 each year. So you're investing €1000 for 40 years, €1000 for 39 years and so on. They say they assume 3.5% average return which seems not too unreasonable to me (maybe a bit conservative but that's OK). If they're telling you the fees (and you're OK with what they are, I'd look for less than 0.5% yearly) and investments are transparent (and seem reasonable diversified to you) then it seems OK to me. – SMeznaric Mar 13 '17 at 13:24

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