{"id":633275,"date":"2026-09-23T07:54:11","date_gmt":"2026-09-23T07:54:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/633275\/"},"modified":"2026-09-23T07:54:11","modified_gmt":"2026-09-23T07:54:11","slug":"biggest-difference-to-amount-of-money-in-your-pension-pot-is-not-how-much-you-put-in-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/633275\/","title":{"rendered":"Biggest difference to amount of money in your pension pot is not how much you put in \u2013 The Irish Times"},"content":{"rendered":"

You contribute diligently every month, so that\u2019s your pension <\/a>sorted, right? <\/p>\n

Not necessarily. While many of us will feel comforted by our contributions, they are only part of the equation. What makes the biggest difference to the size of your pension pot in retirement is not how much you put in, but its growth. New research shows people haven\u2019t really grasped this. <\/p>\n

Growth<\/p>\n

Nearly two-thirds of the value of a typical pension pot comes from investment growth, says Nick Charalambous of Alpha Wealth. He\u2019s quoting new research from Standard Life.<\/p>\n

Your contributions, and any from your employer, form the vital foundation, but how successfully this money is invested plays the biggest role over the long term, says the UK-based data. <\/p>\n

For a typical defined contribution pension pot of \u00a3100,000 (\u20ac116,500), about two-thirds of the total value, or \u00a365,000, comes not from the individual\u2019s contributions but from compound investment growth, according to Standard Life.<\/p>\n

Individual contributions make up just \u00a318,000 of the pot according to the research and employer contributions make up \u00a313,000.<\/p>\n

Compound investment growth happens when your pension contributions are invested in a way that earns a healthy return, and then those returns generate their own earnings over time, says Charalambous. <\/p>\n

Ideally your pension contributions are snowballing \u2013 they are earning a great return, and any dividends, interest or capital growth are reinvested back into your pension pot \u2013 so there should be growth on growth. <\/p>\n

Two-thirds of a typical pension pot comes from investment growth \u2013 but three-quarters of people don\u2019t know that, according to the research. <\/p>\n

Despite its importance, just one in four people believe that pension investment strategy is the main driver of the final value of their pension pot, according to Standard Life. Instead, pension holders over-estimate the impact of their contributions on their pot, and underestimate the value of investment growth, according to Standard Life. <\/p>\n

Maybe if we grasped the truth, we would take a more active role in managing, or at least monitoring, how our pension contributions are invested. <\/p>\n

The reality is that less than half of people in Ireland, 46 per cent, say they always or generally review their annual pension statement, according to the research from the Competition and Consumer Protection Commission (CCPC) published this month.<\/p>\n

Just over one in 10 of us has never looked at their annual pension statement. <\/p>\n

Investment strategy is the silver bullet when it comes to our pensions, so we\u2019d better start opening those pension statements, and maybe taking a more active role in managing our money. <\/p>\n

Default scheme <\/p>\n

Are you in your pension\u2019s default investment strategy? The majority of pension members remain in this strategy throughout their working lives, according to industry studies. <\/p>\n

Default funds make for a simpler, hands-off approach. These funds aim to deliver steady, long-term growth, without needing you to manage your investments.<\/p>\n

Our preference for them reflects our low engagement with our pensions, our limited investment confidence and a perception that the default represents a \u201cgood enough\u201d solution, says stockbroker Davy. <\/p>\n

\u201cIt\u2019s designed for middle ground, for people who don\u2019t want to spend their Friday night reading fund fact sheets,\u201d says Ralph Benson of MoneyCube.<\/p>\n

\u201cYou are not going to end up with no growth in your wealth accumulation years, and equally you will avoid major risk just before you retire,\u201d he says.<\/p>\n

But the middle of the road can be a dangerous place to stand, says Benson.<\/p>\n

Default pension investment strategies are typically designed using a \u201clife-styling\u201d framework, allocating members to growth assets such as equities early in their careers, before gradually derisking into bonds and cash as retirement approaches. <\/p>\n

\u201cTypically when you are young, your money will go into high-risk, high-growth investments. As you get older, your money will be moved to low-risk, low-growth investments,\u201d says Benson. <\/p>\n

But there can be a downside. <\/p>\n

\u201cI would say default options have a bias towards being conservative,\u201d he says.<\/p>\n

\u201cPeople are far more likely to shout at their pension provider if they lose money than ring them up and congratulate them if there is an outsize positive return, so their bias is towards risk-off,\u201d says Benson. <\/p>\n

Default schemes can be quite patronising when it comes to age too, he says. The strategy is often no risk for age 60, regardless of your circumstances. <\/p>\n

Life-styling means that about 10 years before normal retirement age, your investments tend to be put on a generic, predetermined \u201cglide path\u201d. The trouble is, this may not align with your individual financial situation or your retirement plans. <\/p>\n

\u201cPeople at that age often have much less debt, they are on better pay, maybe they have less financial responsibility,\u201d says Benson. <\/p>\n

\u201cIn a lot of cases, they can afford to lose money in a way those younger might not be able to,\u201d he says. <\/p>\n

Life-styling can be geared towards you drawing your pension from age 65, but many people are deciding to work later. <\/p>\n

You can end up derisking into a lot of cash years too early, at a time when cash is losing value, says Benson. <\/p>\n

The default strategy can be problematic for those intending to retire earlier too, says Charalambous.<\/p>\n

\u201cIf you are looking to retire before the normal State pension age, you should be looking to pull back sooner than the default \u2013 but it doesn\u2019t know you want to draw down at 60,\u201d he says.<\/p>\n

Getting a financial adviser to review whether your pension is invested in a way aligned to your individual situation could leave you far better off. Two-thirds of us say we have never spoken to a financial adviser about our pension, according to the CCPC research.<\/p>\n

Take control<\/p>\n

Opting out of the default strategy and taking more control of how your pension contributions are invested is certainly not for everyone, but for the curious there are a few themes to consider, says Benson.<\/p>\n

\u201cStart by asking the question \u2018how would I feel if my money lost 10 per cent of its value in the space of three months?\u2019 Could you cope with that?\u201d<\/p>\n

\u201cWhen you are in your early 40s, that\u2019s exactly the kind of risk you want to be taking \u2013 if you lose 10 per cent in three months, it is absolutely irrelevant compared to the risk that your money doesn\u2019t go up enough for several of the forthcoming years,\u201d he says. <\/p>\n

Once you\u2019ve got your head around the link between risk and your time to retirement, another factor to consider is asset allocation, says Benson.<\/p>\n

This is how you split your money among different types of investments, or asset classes. <\/p>\n

Equities, which are shares and stocks, are higher risk with potential for high long-term growth. Bonds are lower risk providing steadier income, but smaller growth. Cash is very safe and liquid, but yields the lowest return over time. Then there are alternatives such as property or infrastructure. <\/p>\n

A mix keeps your savings from taking massive hits if one market drops. Younger savers may favour more equities for growth, while people close to retirement tend to shift into safer bonds and cash<\/p>\n

Any asset used in the wrong way can be dangerous, including cash, says Benson. <\/p>\n

\u201cA 20 year-old putting their pension into cash is making a terrible decision,\u201d he says.<\/p>\n

When it comes to what percentage to put in the stock market, for someone until their mid-50s, that percentage could easily be as high as 80 per cent, he says.<\/p>\n

When assessing the funds you are invested in, look at things such as market volatility, whether you are over-concentrated in a certain sector or a certain country. <\/p>\n

A fund might be concentrated too much in one sector such as information technology, or a large part of the portfolio might be tied to US equities, for example, leading to geographic exposure. <\/p>\n

\u201cYou might form the view that the valuation of US assets is quite high due to the mega-cap tech companies and the AI buildout,\u201d says Benson.<\/p>\n

That doesn\u2019t necessarily mean exiting US stocks, but through a fund change you could tilt the balance away from the US towards Europe and companies that are paying a cash return as opposed to promising future returns from the AI buildout, says Benson. <\/p>\n

The most important factor when choosing investments is your time to pension drawdown, says Charalambous.<\/p>\n

\u201cBearing in mind you typically draw down 25 per cent from the fund and the balance stays in the pension pot,\u201d he says.<\/p>\n

If you are 45 and looking to access your pension at 60, that\u2019s 15 years away, so you should be at around risk level five, he says. <\/p>\n

\u201cI always ask people: \u2018when are you looking to slow down?\u2019 For most of us, it\u2019s sometime between 60 and 65, so if you are in your 40s now, it allows you to take a greater degree of risk because you know you have 20-plus years left.\u201d<\/p>\n

Those younger, aged 30 to 40, could look at risk level six. If you are aged 50, depending on your anticipated drawdown age, you could split things between four or five. If you are in your 60s, drawing down at 65 or 66, you could drop to level four, he says.<\/p>\n

When it comes to assessing growth of an investment, people often don\u2019t know what good looks like. How do you know if your money is doing okay?<\/p>\n

\u201cSomething growing by 4 per cent is poor because it\u2019s barely keeping pace with inflation, there is no real growth,\u201d says Charalambous. <\/p>\n

\u201cAn average long-term annual return of 8 to 10 per cent would typically be considered good,\u201d he says. <\/p>\n

It can feel safest to invest in low-risk investments because less can go wrong and you might feel more comfortable, but then your pension is affected by losing out on compounding, says Charalambous.<\/p>\n

Following a default investment strategy will follow the rules but do so too conservatively, he says.<\/p>\n

It boils down to age and risk, says Benson. <\/p>\n

\u201cIf it\u2019s producing 4 per cent and you are aged 30, then you probably need to make some changes,\u201d he says.<\/p>\n

Charalambous says he sees too many people opting for a risk level four in their 40s.<\/p>\n

Some will have split their money by investing some at a risk level four, some at a five and some at a six.<\/p>\n

\u201cThey might think that\u2019s a good strategy, but it makes no sense,\u201d says Charalambous.<\/p>\n

\u201cThis is happening more and more frequently, I\u2019m finding, but it goes against the whole premise of riding out the bumps longer term.\u201d<\/p>\n

Not all high-risk funds are good though, he says. They need to be diversified \u2013 you don\u2019t want your entire pension pot to rely on the success or failure of one single asset.<\/p>\n

\u201cI like to see the words \u2018global\u2019 and \u2018equity\u2019, for example, when I look for a high-risk fund.\u201d<\/p>\n

Talk to a financial adviser about projections too, he says \u2013 when saving and investing, you need to know your end goal and where you are at the moment to see whether there is a gap. <\/p>\n

[\u00a0\u2018I\u2019d rather see clients mortgage-free by 66 even if that means delaying pension contributions\u2019Opens in new window<\/a>\u00a0]<\/p>\n

\u201cI feel for any individual, if you have \u20ac550,000 in a pension fund, that is enough,\u201d says Charalambous.<\/p>\n

Add to that the State pension, which is worth about an additional \u20ac250,000.<\/p>\n

\u201c\u20ac800,000 is the sweet spot \u2013 it puts you in a really good position and spits out an income of \u20ac30,000 a year, or \u20ac45,000 once you add the State pension of \u20ac15,000 a year,\u201d he says. <\/p>\n

\u201c\u20ac45,000 is typically what we are allowed to earn and not pay any tax at the higher rate,\u201d he says. <\/p>\n

Most people can\u2019t tell you how much income they are on track to have in retirement, whether they\u2019re saving enough or what actions they could take to improve their future, says Benson.<\/p>\n

It\u2019s Pensions Awareness Week<\/a> \u2013 time to open your pension statement and talk to an adviser. <\/p>\n","protected":false},"excerpt":{"rendered":"You contribute diligently every month, so that\u2019s your pension sorted, right? Not necessarily. While many of us will…\n","protected":false},"author":2,"featured_media":633276,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[72,61,60,5144,1612],"class_list":["post-633275","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-ie","tag-ireland","tag-money-matters","tag-pension"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/633275","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=633275"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/633275\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/633276"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=633275"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=633275"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=633275"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}