Pensions and Retirement Planning
Your pension fund is one of the most important savings plans you will ever invest into. When you retire from your job, your pension will take the place of your salary and become your main source of income.
By the time you reach retirement age, you have 20+ years left in which you have to provide for yourself. The retirement age in Ireland has increased from the once magic number of 65 and will continue to do so.
Currently, PAYE employees are entitled to the State Pension from age 66. However, the age where you start to receive your pension is increasing as follows:
State Pension Age
- 2014 – Born on or after: 01/01/49 – Retirement Age 66
- 2021 – Born on or after: 01/01/49 – Retirement Age 67
- 2028 – Born on or after: 01/01/61- Retirement Age 68
This is paid from taxes the Government collects from current Irish employees. Life expectancy in Ireland is rising, so much so that there will eventually be less people working and more people receiving the State Pension.
The following statistics were released in 2010 to show just how this increased life expectancy may affect the system:
In 2010 there were 6 people working for every 1 retired person.
In 2030 it’s estimated to be 3 people working for every 1 retired person.
In 2050 there is estimated to be 2 people working for every 1 retired person – (Source National Pensions Framework, 2010)
This will ultimately put more pressure on the State Pension scheme. It is just one of the many reasons why you should invest in a private pension. It’s better to have a concrete pension plan in place rather than depend on the State Pension alone.
Just Not Enough
The current State Pension is €248.30 per week. For the majority of people, this will be a substantial drop in income upon retirement. To enjoy your retirement fully and to have a comfortable standard of living, it’s important to have a pension fund in place that can help you to live the lifestyle you ideally want to have.
The sooner you start planning for your pension and putting money aside, the better it is for you. This isn’t to say you can’t start your pension fund later in life.
Pension Funds are available for everyone whether you are self-employed (including farmers), a contract worker, an employee or a company director.
Our Financial Advisors will discuss your options with you and advise on the right pension fund to suit your needs and requirements.
Pension Tax Benefits
The good news is that there are tax breaks and savings available to make on your pension contributions.
The tax breaks are anywhere from 15% to 40% and are calculated according to age limits.
For example, for every €100 you contribute, your take-home pay will only be reduced by €60 if you pay tax at 40% (as of January 2015) and by €80 if you pay tax at 20%.
€100 is invested in your pension plan.
This means that should you contribute €300 a month, your take-home pay will only go down by €180 if you pay tax at 40% and by €240 if you pay tax at 20%.
But €300 will be invested in your pension plan.
The older you get the higher your tax break percentage will be, see below:
Age-related percentage limit for pension contributions:
|30 – 39||20%|
|40 – 49||25%|
|50 – 54||30%|
|55 – 59||35%|
|60 or over||40%|
Source: Office of the Revenue Commissioners, Ireland
Taxation of a lump sum
When you retire, you can usually take part of your pension fund as a tax-free lump sum. The amount you can take depends on the type of pension plan you have and how much you have taken in tax-free lump sums from other pension plans
There is a limit of €200,000 on the amount of the tax-free retirement lump sum. Lump sum payments above that limit will be taxed as follows:
|Lump Sum||Income tax rate|
|Up to €200,000||0%|
|€200,001 – €500,000||20%|
|Over €500,000||Taxpayer’s marginal rate|
Pension Review Service
It is important to regularly review your pension to ensure it continues to meet your needs and is performing to the highest rate.
Key Financials can provide a Free Pension Review, even if you took your pension through another provider. The Free Pension Review ensures that:
- The Fund Performance on your pension is good
- The charges on your pension are not excessive. This is particularly relevant with older plans or plans taken out through banks or tied agents.
- Your pension is invested in funds that are appropriate for your age and risk profile.
- Your contributions are adequate in order to achieve your target retirement plans.
Key Financials provides advice on the following Pension categories:
- Personal Pension Plans
- Executive Pension Plans for Company Directors
- AVC Pensions
- PRSA Pensions
- Self Directed
- Buy Out Bonds (also known as Personal Retirement Bonds)
Post Retirement Options
Choosing and setting up your Pension Fund can seem confusing for a lot of people but that’s where Key Financials is here to help. We can use our extensive experience and technical knowledge to advise you on the options available to you and the implications of each option. It is extremely important to receive independent advice when you are retiring to ensure that:
- You receive the largest Tax Free Lump Sum available to you
- Get quotes from all the providers in the market not just your current pension provider
- You know all the options available to you
Pension funds are available for everyone whether you are self-employed (including farmers), a contract worker, an employee or a company director. Our Financial Advisors will discuss your options with you and advise you on the right pension fund to suit your needs and requirements.
The team at Key Financials are here to help our clients achieve financial security and peace of mind. We will help you make decisions with your money that will help you reach your financial goals as efficiently as possible.
Contact the Key Financial team now, to get started on saving for your pension fund!
Annuities Pensions Cavan & Monaghan
The term “annuity” means a series of pension payments, normally monthly until a particular event occurs. Annuities are normally purchased by payment of a single premium to a life assurance company. You should think about taking advice when considering your retirement options, especially where you are buying an annuity.
Benefits payable on retirement
If you are a member of a defined benefit scheme, you may never have to make a decision about buying an annuity as the trustees will pay your pension directly or buy an annuity on your behalf.
For other pension arrangements, the purchase of an annuity may be one of the most important financial transactions in your life – certainly, it is one with very long term consequences. It is therefore important to understand how annuities work and the various options that may be available to you.
Many pension arrangements, particularly those that invest in insurance contracts, allow an “open market option”. This means that you may have a choice of going to any life assurance company operating in the market, regardless of where the pension fund itself was invested. This is important as some providers of annuities are more expensive than others from time to time.
Our experienced Financial Advisors in Cavan & Monaghan will guide you through the process to ensure you get the best from your Annuity Pension – Get in touch to make an appointment.
ARF / AMRF Pensions Cavan & Monaghan
An approved minimum retirement fund (AMRF) is a personal tax-efficient pension fund into which you can transfer all or part of the balance of your pension fund after you receive your retirement lump sum. It is thought that around 25,000 people have AMRFs.
ARF / AMRF Pensions Information
Who can invest in one?
Retiring members of an occupational scheme and individuals that hold a personal pension, Personal Retirement Savings Account (PRSA) or retirement bond who do not have other secure pension income payable for their lifetime of at least €12,700 per annum.
Retirees with private pensions, and those with public sector pensions who have additional voluntary contributions (AVCs) and a State pension. However, most of those with an AMRF worked in the private sector.
Why’s it in the news?
With an AMRF, you can only withdraw 4pc of the funds each year until you reach the age of 75. But if you start to receive at least €12,700 per annum of other pension income, your AMRF turns into an Approved Retirement Fund (ARF) where all of your funds can be accessed immediately if you want to. Any withdrawal is subject to PAYE.
What has changed?
Revenue updated its rules to allow the State pension Christmas bonus and living alone supplement to be taken into account as income for the purpose of meeting the €12,700 pension income test to unlock AMRF funds before age 75. This means anyone under 75 and currently receiving the maximum rate of State pension will be able to access their AMRF funds in full in December of this year after they receive the Christmas bonus on their State pension.
Pensioners with little or no income other than State pension may be able to empty their AMRF completely tax-free over a few years, using the income tax exemption relief, according to actuary Tony Gilhawley of Technical Guidance. This is because you pay no income tax over age 65 if your total income is less than €36,000 (married couple) or €18,000 (single).
AVCs Cavan & Monaghan
Paying more to improve benefits – Additional voluntary contributions (AVCs)
AVCs are contributions that you can make in addition to your normal contributions to an occupational pension scheme in the public or private sector to increase your retirement benefits.
AVCs are a defined contribution pension arrangement provided for your scheme usually by an insurance company or specialist pension provider. The fund available at retirement is determined by the combination of your contributions and any investment returns on these contributions less the charges.
You can choose the rate at which to contribute to an AVC, subject to a maximum rate determined by Revenue and these AVCs attract tax relief, subject to Revenue limits.
AVCs are only permitted if the rules of the particular scheme permit AVCs to be made. If the rules do not permit AVCs to be made then a Standard PRSA must be offered by your employer for the purpose of making AVCs.
If you make AVCs, then your benefits will be subject to the rules of your scheme and the Revenue limits applying to occupational pension schemes.
Buy Out Bonds
Have you left a Company where you had a pension plan?
You may want to investigate if you can transfer this pension into your own name, this is possible by means of transferring your company pension into your own pension bond.
What is a Buy Out Bond?
A buy out bond (also known as a personal retirement bond) is a policy where you can transfer your pension fund if you leave a company pension scheme or if the pension scheme is being shut down. The trustees may set up the buy out bond for you and put you in control, however a lot of times this needs to be done for you and options explained to you which Financial Planner will help you with. This is an invaluable pension plan and one which can grow and be managed for you.
What is the minimum investment?
What can Invest in?
Funds, Deposits, Self- Directed Deposits & Direct Equity.
When can I access the benefits?
Usually from 50.
How can I take the benefits?
Normally 25% tax free cash and an ARF/AMRF or annuity or up to 1.5 times based on salary and service and an annuity.
I have a previous pension in the UK (or elsewhere) can I transfer it?
Normally yes, contact us to confirm if a transfer is suitable for your situation.
Personal Pensions Cavan & Monaghan
If you want to ensure that you have adequate income in retirement, and the State pension (approximately €1,000 per month) will not meet your needs, you should be aware of the pension options open to you.
Your pension options will depend mainly on your work situation, although you may still be able to choose which option is best for you.
If you are employed, you may be covered by an employer-sponsored occupational pension scheme or relevant public sector scheme.
If you aren’t covered by these or if you are not an employee, you may be able to take out your own Personal Retirement Savings Account (PRSA) or Retirement Annuity Contract (RAC).
Our experienced Financial Advisors in Cavan & Monaghan will guide you through the process to ensure you get the best from your Private Pension – Get in touch to make an appointment.
PRSA Pensions Cavan & Monaghan
A Personal Retirement Savings Account (PRSA) is a long-term personal pension plan, designed to let you save for retirement in a flexible way. Most people can get a PRSA but they can be especially helpful for people with no pension provision. PRSAs were first introduced in Ireland under the Pensions (Amendment) Act 2002.
Your PRSA is a contract between you and a PRSA provider in the form of an investment account. You can change employment and continue to use the same PRSA and you can switch from one PRSA to another at any time, free of charge.
You can get tax relief (based on your age) for the contributions you pay into your PRSA. Since 2003 employers that do not have an occupational pension scheme for their employees must provide access to at least one Standard PRSA.
Employees who are not entitled to join a pension scheme within 6 months of service must be given access to a PRSA by their employer. Read more about employers’ obligations and PRSAs here (pdf)
There are two types of PRSA:
- Standard PRSA
- Non-Standard PRSA
The main differences are:
The charges are capped for standard PRSAs but not for non-standard PRSAs
Types of investment are restricted in standard PRSAs but not in non-standard PRSAs
You can read more about the differences between Standard and Non-Standard PRSAs in a Consumer’s Guide to PRSAs (pdf) produced by the Pensions Authority.
Standard PRSAs are likely to meet the requirements of most people. The level of charges on your account is important to consider, as the charges imposed reduce the fund you can build up. On your retirement, the size of your fund will depend on your contributions and the investment performance less any charges. It is not possible to predict investment performance.
Charges on Non-Standard PRSAs are not capped and in most cases, are higher than Standard PRSAs. If you are considering a Non-Standard PRSA, ask for a full explanation of the differences between this product and the Standard product. You should beware of promises of better returns on Non-Standard PRSA products as predicting investment performance is extremely difficult.
Do you need a PRSA?
If you are considering whether to invest in a PRSA, you should ask yourself the following questions:
Is there an existing pension scheme available to me in my job?
If not, you should consider making provision for your retirement and a PRSA may be the option for you. If you already have a good pension arrangement, you may not need to make any additional provision, or you may be able to “top up” your benefits by making Additional Voluntary Contributions (AVCs). If there is no AVC facility, your employer must provide access to a PRSA.
Should I start a PRSA if I already have a personal pension plan?
You should seek professional advice based on your circumstances. Contact a broker or your pension provider for more information.
Do I need a PRSA if I already have a defined benefit scheme? Defined benefit pension schemes promise a pension related to your salary (e.g. two-thirds of final salary on retirement). You may not need to make any further pension provisions if you have this type of pension. Transferring from a defined benefit scheme into a PRSA involves a risk. Assess your financial position and weigh up the advantages/disadvantages.
Do I need a PRSA if I have a defined contribution scheme?
You are already carrying the investment risk – your pension will depend on the contributions you make, together with the investment performance of your fund, less any charges. If your employer is making a contribution to your existing scheme, you should find out whether this will continue if you transfer to a PRSA.
Investment of your money
Standard PRSAs invest only in pooled funds where the risk is spread across a large number and variety of investments. Non-Standard PRSAs can offer wider investment choices. However, you need to be sure that you understand the investment choices and the reasons why you should opt for them. If you do not understand how your pension will be invested, then you should consider if this product is best for you.
You should also be sure that you can afford the monthly payment suggested and that this is the most effective payment for tax relief purposes.
Tax relief and PRSAs
If you pay a contribution into a PRSA, you will benefit from tax relief at your marginal income tax rate. However, you have to pay social insurance (PRSI) contributions and the Universal Social Charge on your PRSA contribution. If your contribution to your PRSA is deducted from your salary by your employer, your tax relief is given at the time you pay the contribution.
The maximum annual tax deductible for a PRSA is based on a percentage of your earnings. The allowable percentage rises with age. (So for example, someone over 40 will get a higher rate of tax relief than someone aged under 30).
Tax relief is allowed against your relevant earnings (that is, earnings from employment, from a profession or from a trade). If you have earnings as a proprietary directory or employee of an investment company, these are discounted. “Net relevant earnings” are relevant earnings less losses, capital allowances and certain payments that reduce a person’s income for tax purposes such as tax effective covenants.
If you are a member of an occupational pension scheme or of a statutory pension scheme, you may pay to an Additional Voluntary Contributions PRSA.
Our experienced Financial Advisors in Cavan & Monaghan will guide you through the process to ensure you get the best from your PRSA Pension Get in touch to make an appointment.
Our experienced Financial Advisors in Cavan & Monaghan will guide you through the process to ensure you get the best from your PRSA * Personal Pension – Get in touch to make an appointment.
Self directed Pensions
What is a Self-Directed Pension?
A Self-Directed Pension may be suitable for experienced investors, who want to manage their pension fund investments themselves. It gives you access to invest in a range of fixed-interest and equity securities and should be considered a high-risk investment.
- Control – You decide how your pension is invested.
- Manageable – Change how you invest your contributions at any time.
- Flexibility – You can add to your pension fund whenever you wish.
- Our Pension Calculators can help you decide how much you can afford to save.
Who is this product for?
Experienced investors, looking for control over their investments.
As with a managed pension, you can make regular monthly contributions towards your pension fund.
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Drumlin Financial Services Limited t/a Key Financials is regulated by The Central Bank of Ireland. Registered Office: Aeta Place, Gortnakesh, Cavan, Co Cavan. Company Registration no. 407677