Early investment can pave the way to a happier retirement

THE January 31st deadline for the self employed to take advantage of the tax relief available by buying a personal pension plan means that many people are trying to establish not only how much tax they will save by buying a pension, but more importantly, which company's fund they should choose.

Since tax reliefs for life assurance policies, mortgage interest and VHI have been eliminated or scaled back, the tax deduction (at the highest rate of 48 per cent) for pension funding is the last, significant tax write off for ordinary working people. For the self employed, who have no employer contributions to depend upon, it is an essential means of ensuring any kind of independent retirement.

For such people, who are also limited bye the tax authorities to funding up to 15 per cent of their earnings, it is particularly important to start saving as early as possible and as close to the tax relief limit as possible. The self employed person who only starts funding a pension at 40 (or later) is going to face a significant retirement income shortfall at age 60 or 65, given the current tax restraints; the best advice is start saving as early as possible with as much as possible.

Investment strategy is the other key to providing an adequate retirement. Buying the first pension on offer for the tax relief should be discouraged, given that a person's pension is likely to be their single most valuable asset, even larger than their home. Instead, you need to examine the consistency of the company's current and past fund performance and the cost structure. You also need to establish the correct risk profile you wish to assume.

We asked three well known, fee based advisers Eddie Hobbs of TIPS, John Crowe of KPMG Stokes Kennedy Crowley's private client's department and Owen Morton of Moneywise to recommend personal pension plans for cautious and aggressive categories of investors under age 40 and between age 40-50. Each of the advisers recommended single premium payments on a no commission basis.

John Crowe (KPMG Stokes Kennedy Crowley): "For the cautious, under 40 investor I would look for a good managed fund. At the end of the day it all comes down to the quality of fund management and you could take your pick from about four companies - Standard Life, Bank of Ireland Asset Managers, New Ireland and Eagle Star.

For the cautious 40 to 50 year old we're looking at with profit funds, mainly Equitable Life and Scottish Provident because of their consistent excellence performance. The Norwich Union has taken a lot of stick lately, but it's a very reputable company and its with profit results have been very good.

"The aggressive under 40 year old and the 40 50 year old need to be in equities. Davy Stockbroker's new pension, with Davy's giving a personalised management of Irish and UK stocks looks very good and at first glance the charges look pretty competitive, but it is aimed at minimum £25,000 contributions. Otherwise I like New Ireland's Opportunity Fund and Hibernian's Far East Fund if you are prepared to take the risks. Once your man hits 50 he can then be put into another equity fund closer to home with, mainly Irish and UK stocks.

Eddie Hobbs (TIPS): "For the cautious investor, whatever his age, I would recommend a good with profit fund. I'd recommend Equitable Life's with profit fund because of its steady performance if he has substantial funds and split the investment with Norwich Union which has curtailed excessive payouts putting it in a good position for future stability. These companies avoid volatility. In the case of Equitable Life you are investing in the company's ability to control their costs and their consistent selection of good stocks. But another alternative is the Individual Retirement Investment Service, (IRIS), that New Ireland operates. It is a truly managed fund with an equity element but New Ireland keeps an eye on your retirement age. Unlike management by computer, which is typical of most so called managed funds, this is fund management by thinking humans.

"For the aggressive investor of either age group there is New Ireland's General Equity Fund or Standard Life's International Equity Fund. New Ireland has a good, steady track record and an excellent management team. Standard Life has a good record out of Edinburgh and more important, substantial resources behind its fund managers. For the person closer to 50, I would probably recommend a split between New Ireland and Scottish Provident, partly to spread the risk and I would put a small part of the holding, say 30 per dent into a good with profit fund with the balance remaining in equities."

Owen Morton (Moneywise): "I don't think I would distinguish between the age groups - either the person is a cautious investor or not. As I see it, we are talking about a with profits pension for the risk averse and an aggressively managed, mainly equity based, unit linked one for the less risk averse. I think it can be said confidently that there isn't a weak link among the main players in the with profit market and this includes Equitable Life, Friends Provident, GRE, Norwich Union, Standard Life and Scottish Provident.

"While more volatile, the unit fund holds the promise of a potentially higher return, though the cycle in fund values takes no account of the individual's timing as to when he or she wishes to retire - values could be depressed.

"I don't want to commit myself to any single company in this category because there are a lot of issues to come to grips with. There are about three companies I would favour at this moment but things can change. All in all it's a question of risk and return. In an ideal world, the security afforded by the with profit instrument should have an acceptable price tag, and the market forces unit linked version should reward the less cautious policyholder appropriately."