Retirement Pension

An occupational pension sets aside an employee's retirement benefit with an external financial institution, so the money is protected even if the employer fails.

There are two broad types: one where the employer manages the money and guarantees a defined amount, and one where the employee invests and keeps the result. The latter pays more or less depending on how it is managed.

Many people leave the self-directed type untouched. The money sits in cash-equivalent holdings earning little more than deposit rates — a poor outcome for money invested over decades.

The tax treatment is substantial. Contributions earn a credit, and tax on investment gains is deferred until withdrawal, which enlarges the compounding effect considerably.

Early withdrawal is best avoided. The tax benefits must be repaid, and more importantly the money loses the years it would have spent compounding until retirement. When changing jobs, transferring the account keeps it going. Taking the money as cash midway erases all the time it had accumulated.