This post does a good job of demonstrating how a pension of €1,960/month will grow that bit better than an ETF portfolio of €1,960/month, but I think it fails to capture the most important benefit of contributing to a pension – the tax relief!!

Using your figures, if this couple invested €1,960 into their pension every month, then they would get tax relief. As they are high earners, this will be 40% relief. Investing €1,960 will only cost them €1,176. In my opinion, there is an extra €784/month missing in the pension route calculations above.

A more like for like comparison would be to compare, €1,960/month into a pension vs €1,176/month into an ETF portfolio. Both of these will cost this couple €1,176/month out of their pockets (if you get me). Using this comparison it is easy to see how a pension would ‘win’ all day, every day.

Alternatively, the couple could take the tax relief (40%, or €784/month) and invest it in an ETF portfolio alongside their pension. Now the pension route after 20 years would be a pension of €2.7M plus the 40% ETF portfolio of €840,000 (40% of 2.1M). This is now a total of 3.54M now!! This beats the ETF only route by over €1M after only 20 years.

(remember, this 40% ETF portfolio is from the tax relief, and extra (free) money that you omitted from your calculations above).

I think the fact that a pension is contributed to with before tax money is the real reason why nothing will ever come close to a pension (in Ireland). The tax relief really supercharges growth.

Also, it does not have to be one or the other. I have maxed my pension – and I also have an ETF portfolio. I have read that you want to retire earlier and avoid pensions as you cannot access them before 50. In the above example, the (free) 40% ETF portfolio could be used/emptied before you turn 50 and then you could move to your pension. No matter how you cut it, you will pass the age of 50 and have access to your locked up pension eventually.

Cheers,
Damien

Sounds good! Yes pensions can definitely shave off a few years to FI if you are near enough the age to access the funds! Best of luck on your journey

Makes sense for you. I’m quite late to the investing party so rough plan is to set up two Davy pension plans for my wife and I but also invest in some accumulating ETFs via Degiro (if I ever get off the wait list) or Interactive Broker (I have an account here). I’ll also play around with some stocks but I think a Buy & Hold strategy would suit me best.

Hiya, Yup I’ve seen others have used them and managed to get a 0.75% management fee with no advice option, self-directed but as I’m planning to start withdrawing by age 46 at the latest that’s 14 years where I’d need to bridge the gap with other investments so doesn’t make sense for me. I’m not dead set against pensions, I have run the numbers and it can certainly speed up your journey if you’re closer to the age when you need to access it but unless I decide to work part-time, have another kid etc and push my FI date out by a few years I don’t want the complication of having some funds outside a pension to bridge the gap between access etc. Though I’m known to change my mind and never say never.

Hiya, The base rates in both are the same at 2.90% based on the 2018 report excluding the dip in ’08. The real rate of returns quoted in the investment article differ as they are based on income at withdrawal which takes into account the different marginal tax rates depending on your level of income at withdrawal. The comparison article doesn’t look at the withdrawal as much as that will depend on the individual circumstances. Hope that makes sense?

Why do the returns differ here compared to the investing in Ireland article?