The average life expectancy in Ireland is rising. People are living longer, healthier lives so it’s important to plan in advance for this new phase in life and we all want the opportunity to enjoy our golden years rather than working into our 70s.
For many of us, the prospect of retirement from work provides an opportunity to seek fresh directions and new challenges. Planning where your regular income is going to come from in retirement will give you peace of mind and leave you prepared to retire from working life whether that’s in 40 years’ time or just 10.
Can I just save?
The Irish Government fears that because of the relatively low level of State Pensions, individuals with no other regular income in retirement will fall back on the State for medical care and other supports. This will impose a significant financial burden on future taxpayers. The Government has provided substantial tax incentives for individuals and employers to make advance provision for retirement through private pension arrangements such as :
• Personal Pension Plans,
• PRSAs, and
• Occupational Pension Schemes, including AVCs.
I have no pension?
Planning for your retirement will give you the best chance of maximising your time, adjusting to this lifestyle change and help you budget for the type of financial security you would like during retirement. The pension’s landscape has changed significantly and while the state pension provides many with the security of having a small guaranteed income, everyone has different incomes, lifestyles, and retirement plans. There are a number of different routes, financial products and ways to draw income at retirement.
I have a Personal Pension / PRSA already.
Like many, you have already taken the steps to create financial stability for your future. But you may not know where these funds are? Where exactly is your monthly contribution going and is it being invested in a place that suits your risk profile? Previously a lot of managed pension funds were invested into equities (stock and shares), which are very risky but were invested in an economic time when it was believed that this was the best place for these funds. Like everything the pension world has evolved and there are different structures now in place to suit customer preferences. Take control of your pension and get regular review on performance.
How do I get my funds when I am ready to retire?
When retirement benefits are being taken from the Plan, the individual can take up to 25% of the accumulated fund as a lump sum, which is tax free subject to a limit of €200,000.
An individual can draw on a Personal Pension Plan at any time after age 60, but before age 75.
You have three options with regard to how the balance of the retirement fund not taken as a lump sum:
- use to buy an annuity with a life company, or
- transfer to an Approved Retirement Fund (ARF) in his or her own name, or
- take the balance immediately as a taxable lump sum, subject to PAYE & USC.
I have a Pension with a previous Employer?
It is not uncommon for people to change jobs during their career. Which could mean you lose track of your pension? It could make great financial sense to transfer that old pension from a past employer to a personal retirement bond, also known as a buy out bond.
To put it simply a buy out bond is a new home for certain types of old pensions. You may not know where these funds are currently invested and even how they are performing.
- You can transfer your pension from a previous employer’s scheme
- You can transfer your UK pension if you are now living in Ireland.
- You can transfer from your current employer’s scheme if this is being wound up.
- You can transfer your old buy out bond.
Not transferring your pension may mean that your previous work pension is under the control of trustees and an employer who you no longer deal with. Dealing with a provider that you choose means you can easily keep track of your pension. You have the flexibility to make decisions about your pension without the need to get permission from your previous employer and you can choose from a wide range of investment options. You can access your retirement fund from a buy out bond any time after your 50th birthday.
I have my own business?
An occupational pension scheme is a legal arrangement set up by an employer, who must contribute towards the cost of the scheme, to provide retirement benefits for one or more of its employees
Any contribution made by the employer to the scheme to provide benefits for an employee is not treated as a benefit in kind for the employee concerned. Therefore the contribution is not liable to income tax, USC or PRSI in the hands of the employee involved. Any ordinary annual contribution made by the employer to the scheme is tax deductible as a business expense against trading profits.
Investment returns of the scheme are exempt from Irish Capital Gains Tax and Income Tax. Therefore funds accumulate tax free within the scheme. Any personal contributions made by the employee to the scheme are deductible for Income Tax purposes (but not for PRSI or USC purposes) within the limits.
So what are the risks?
The value of your investment may go down as well as up, the Plan holder could get back less than the anticipated or targeted retirement benefits shown at the outset, the retirement fund may fail to keep pace with inflation and the Plan holder may need access to the Plan funds, at a time and in circumstances in which he or she is not allowed access to the Plan.
Still Confused? Have more Questions?
Pensions are complex and to get the greatest benefit from them you should make an appointment to see a financial adviser and get the best result for your individual needs. Eamonn and Michael Moore are in this business to give you honest and professional advice. Ease this burden and relax knowing that your future is in good hands. Contact us today, eamonn@moore.ie (087) 2244 985 or michael@moore.ie (087) 935 1291 , or visit our website www.moore.ie.