The name might sound all fancy and grand, but truth be told, it’s nothing to get excited about if you actually know what it’s all about. Once you dig deeper, you’ll realize it’s nothing special at all, but it took me a whopping 3 to 4 years to grasp the ins and outs of the personal pension scheme and put it into action. Even though I’ve had a decent education and know plenty of supposedly smart people, hardly any of them actually bother with it. But hey, these days it seems like everyone and their dog is yapping about pension savings and Individual Retirement Pension (IRP) accounts. I mean, just flip on YouTube or skim through the news, and you’ll see loads of folks blabbering on about how their pension funds and IRP balances are growing faster than ever. Looks like people are finally waking up and taking notice, or so it seems.

As I blabbered on in my last post, the real deal when it comes to setting up a pension structure is all about “getting ready for retirement.” For me, that means having a steady income flow (cash flow) that keeps rolling in every year, till the end of time, without me having to break a sweat. Oh, and it should be enough to cover my living expenses comfortably, even after paying off those income taxes and health insurance premiums. I’m talking about a life where I can indulge in my hobbies, learn new things, stay fit and active, jet off on vacations whenever I please, and enjoy good food without worrying about a thing. Maybe I could even move into one of those swanky retirement communities where they do all the boring chores like cleaning and laundry. Now that would be the life, wouldn’t it? By the way, it just occurred to me that if we youngsters could find a hobby we love and actually stick with it, well, retirement might just be a jolly good time.

But let’s get back to the point, shall we? Time to take a closer look at the three-tier pension structure.

<Source : NH Securities 100-Year-Old Research Institute>

1. National Pension: Oh, we’ve got it, alright. But who knows if we’ll ever actually get our hands on it in the future. Sure, they’ll probably throw us a bone, but as time goes on, you can bet your bottom dollar that the national pension contribution rates will keep climbing higher and higher. So, we might expect to receive a nice little sum each month, let’s say around $1,000 to $1,500. But honestly, it’s way more comforting to just pretend it doesn’t exist. Ignorance is bliss.
   
   
2. Employee Pension: Now this is where things get interesting. We’ve got two flavours: Defined Benefit (DB) and Defined Contribution (DC). If you’re in it for the long haul, DC is the way to go. While DB may have its advantages when wages are on the rise, once they hit their peak, switching to DC ain’t such a bad idea. But if you’ve been faithfully contributing for over 10 years and the magic of compound interest kicks in, DC starts looking mighty appealing. Of course, we can’t make all our decisions based on cold, hard facts. We’ve got to consider our own circumstances and what suits us best. Sadly, my company only offers DB (which, by the way, is my retirement pension, not that it matters). So, I’ve cleverly categorized my retirement pension as a safe stash of cash assets.
   
   
3. Individual Pension: The personal pension represents the core of the three-tiered pension structure. I firmly believe that a well-managed personal pension can provide the foundation for a comfortable retirement. However, achieving this goal is no easy feat. It requires unwavering dedication, consistent contributions, and a long-term perspective spanning over 20 years. While the journey may appear daunting, a personal pension is an investment instrument that should be prioritized regardless of any challenges that may arise. Its true power lies in time. The earlier one starts, ideally from birth if possible, the greater the potential for reaping the benefits. Reflecting on the past, I can’t help but imagine a scenario where my parents had established this pension structure when I was born. Instead of writing this blog post, I might have been leisurely savoring wine on a picturesque farm in Tuscany, Italy. The individual pension is the government’s way of telling us to prepare for retirement. They offer us a limited selection of investment options, throw in some tax benefits, and even give us a nudge to get started. So, if I were you, I’d seriously consider giving it a go. In the subsequent sections, we will delve deeper into my personal pension strategy and its implementation.