Pensions
Generally people are living longer and leading more active lives in retirement. As a result it is more important than ever for you to think about where your income will come from when you retire.
The state pension will provide you with a basic level of retirement income, provided you qualify.
When planning for retirement you will need to decide whether this is enough to live on in retirement and if not where the additional income will come from. It is important for you to take control of your retirement planning and make decisions regarding your pension.
Broadly speaking most peoples’ pensions come from one or more of the following:
- An occupational pension scheme (also known as a company pension plan)
- A PRSA (Personal Retirement Savings Account)
- A Personal Pension Plan (RAC – Retirement Annuity Contract)
- The State Pension
Who will look after you in your retirement?
The current State social welfare pension is €230.30 per week or...
€11,976. per year (as of Jan 2009)
……will this be enough for you to live on?
87% of a Pensions Board Consumer Research survey said that the State social welfare pension would NOT meet their needs in retirement.
Where will your additional income come from when you retire?
Start your pension early, the longer you leave it, the more you pay!
Personal Pensions
If you're self-employed, or equally if you are an employee, but not a member of your employer's pension facility, then it's up to you to plan for your own retirement.
So if you want to be able to enjoy a comfortable retirement, the onus is clearly on you to put money aside during your working years. And, the sooner you do so, the better chance you have of meeting your goal.
Not only that, but the generous tax advantages that a pension plan offers, makes it a really cost efficient way to save.
A Personal Retirement Savings Account is a long-term plan designed to enable you to save for your retirement. (This is especially important for people with no pension provision). A PRSA is a personal pension suitable mainly for individuals who are not in employer pension schemes. They are more flexible than a personal pension. Anyone up to the age of 75 can take out a PRSA and you don’t have to have an income to contribute to a PRSA (although you don’t benefit from the tax relief in this case).A PRSA allows you to change employment and continue to use the same PRSA.
If you are employed, by law your employer must offer you access to a PRSA if:
• there is no employer pension scheme available
• you are not eligible (due to service etc) to join an employer pension scheme
• you only qualify for the life assurance part of the pension scheme
PRSA's
PRSA’s can be arranged by PFP Financial Services who will visit the employer and arrange for PRSA’s to be made available to all staff at no cost to the employer. In this way the tax relief is taken at source reducing the administration for the staff.
You can also use a PRSA to make AVC’s (additional voluntary contributions) subject to the applicable thresholds.
Contact PFP Financial Services to arrange a free financial review
Executive Pensions
As a company director or company owner, you probably view your share in the business as your pension when you retire.
While this is one way of providing a source of income when you retire, there is no guarantee that it will provide you with the standard of living you are currently accustomed to throughout your retirement years.
An Executive Pension Plan allows you to provide for your pension fund independently of the company assets and its future profitability. And it is designed specifically to take full advantage of the generous tax relief that is granted to Company pension arrangements.
| Your age | % of Income you get tax relief |
| Under 30 | 15% |
| 30 -39 | 20% |
| 40 -49 | 25% |
| 50 - 54 | 30% |
| 55-59 | 35% |
| 60 or over | 40% |
Retirement Bonds
In this era of career mobility, you may change jobs many times during your lifetime. If each job has its own Occupational Pension Scheme, this can mean you end up at retirement with lots of pension funds accumulated in lots of schemes. This is not ideal for several reasons.
• The scheme Trustees must sign off on any requests to withdraw or transfer your benefits, either at or before retirement. So you need to keep track of the Trustees of each scheme until you retire. This may prove difficult if, for example, your former employer winds up operations or is sold before you retire. It might also be your preference to have limited contact with your former employer
• You may not be aware of what funds each of your retained pension benefits is invested in, or what the ongoing charges are. This can effect performance and may not correlate with your own attitude to risk and can result in paying unnecessary charges
One way of avoiding the above situation is to keep “bringing your funds with you”, i.e. transferring your accumulated funds from one Occupational Pension Scheme to the next. However, this may not always be possible. If your current employer only offers a PRSA, there are restrictions placed on transferring from an Occupational Pension Scheme to a PRSA. Or if you become self-employed, you cannot transfer funds from an Occupational Pension Scheme to a Personal Pension Plan.
Another potential solution is a Personal Retirement Bond or Buy Out Bond. A Retirement Bond is a lump sum pension policy, chosen by you, into which an existing fund can be transferred from an Occupational Pension Scheme. You choose the fund manager and you choose the fund - from the various insurance companies. Self-directed Retirement Bonds are also available, allowing you to choose your own shares or investments if the fund is large enough. Once the Trustee of the Occupational Pension Scheme has arranged for your fund to be transferred into your chosen Retirement Bond, you then have full control over your fund and the scheme Trustee has no further connection with it.
Please contact one of our advisors to discuss this.
Options at Retirement When you retire, a whole new chapter in your life opens up for you to enjoy. However, you have two important financial decisions to make before you can start spending that retirement fund you have been building up for the last number of years.
• how to maximise your tax free lump sum
• how to use the balance of your retirement fund to provide an income for yourself and your spouse/dependents throughout your retirement years.
As a result of the 1999 & 2000 Finance Acts, as well as the traditional option of purchasing a Pension, you may also have the new option of investing your fund in an Approved Retirement Fund (ARF) – See below
Contact us to arrange a consultation with one of our pension advisors to discuss your retirement options.
Approved Retirement Fund (ARF)
An ARF enables you to control your pension fund assets at retirement and to direct future investment strategy through a Qualifying Fund Manager. You can make withdrawals from your ARF at any time. Your ARF will avail of tax free growth however any withdrawals will be subject to PAYE.
On death the value of your ARF would be transferred to your spouse tax free. Any subsequent withdrawals would be liable to PAYE.
In order to avail of the ARF options you must have at retirement a guaranteed income for life of €12,700 per year. If not you must invest €63,500 in an Approved Minimum Retirement Fund (AMRF). An AMRF is similar to an ARF however you cannot access your fund until age 75.
A minimum of 3% of the ARF fund value must be taken per annum