Treat pensions as a most important buy

Factors to be considered with pensions are when you will retire, the pension income level, and risk, writes Una McCaffrey

The one danger attached to the tax-relief deadline is that common sense can be blinded in the rush to make payments before the end of January. Many providers tailor special offers to appeal to the "deadline" market but, as with everything in life, what's special for one individual will not be the best option for all.

Pensions should be treated as one of the largest and most significant purchases to be made in the course of a lifetime: just as house-buyers should not settle for the first property they view, neither should pension-shoppers rush into the first product offered to them.

"Investors rush to get their contribution in before the January 31st deadline and often pay very little attention to where their pension fund is being invested," says independent financial adviser Mr Liam Ferguson. "Of course the full tax relief is an important consideration, but it shouldn't be the only consideration."

Mr Ferguson's most basic advice to investors is to ensure that they can afford the repayments on the product they choose. After that, he says fees and commissions should be considered.

"If making a large contribution, particularly an annual one, a client should negotiate with their adviser for a reduction in commission, or else pay the adviser a flat fee and have the contribution invested without commission," he says.

"Standard commission terms are such that an adviser will receive commission of up to 5 per cent of any lump sum or up to 50 per cent of the first year of any recurring contribution, so if the contribution is large, it certainly pays to haggle."

Mr Tony Lawless of Irish Life advises that three main factors need to be considered when choosing a pension: when you want to retire, what you would like your pension income to be and, finally, your attitude to risk.

"A financial adviser can go through these with you and recommend a suitable contribution level, investment option and pension plan," he says. "In terms of choosing a pension plan, investment choice is the most important."

The important thing is not to be fooled solely by past performance - there is quite a lot of evidence to suggest that fund managers that did well in the past will not necessarily do well in the future. "If they could pick the right stocks every time, they'd be using their own money!

"The most important thing is to pick an option that most closely suits your needs."

In the same vein, Mr Paul Overy of Financial Engineering Network advises caution when investors are considering pension fund performance tables, since they rarely take account of fees or commissions charged by fund managers. "Don't take league tables at face value," he says.