It was recently put to me that putting money into a pension plan over the last ten years was a waste of money I would have been better off with the money in the post office. There are many benefits to starting a savings plan especially for short term needs. However when it comes to saving for retirement, with the current income tax relief available, it just makes more sense to save into your pension plan.

For example assume you put €300 a month into a savings plan versus €508 a month into a pension (which costs you €300 a month when 41% income tax relief is included) or €375 a month into a pension (which costs you €300 a month when 20% income tax relief is included). Assume both investments are over a 17 year period.

The higher value or the green line on the chart above illustrates the Pension contribution (€508 per month) - 41% taxpayer. The middle value or red line on the chart above illustrates the Pension contribution (€375 per month) - 20% taxpayer. The lower value or orange line on the chart above illustrates the Savings contribution (€300 per month).

So, in this example, if you were getting income tax relief at 41%, your pension fund would be almost double your savings fund when saving the same amount. For both the savings and pension plan we assume:

• 100% of the contribution is invested
• The fund will grow by 6%
• There is a 1% fund charge
• Contributions will increase by 3% a year
• There are no plan fees

For the savings plan we have assumed a 30% exit tax is paid. For the pension plan we have deducted the pension levy. This quote was performed on the 1st August and the next levy payment is 30th June 2012. Pension income in retirement is subject to income tax.

Warning: These figures are estimates only. They are not a reliable guide to the future performances of this investment.

Example figures in the illustration above provided by Irish Life.