A pension is a long-term saving plan that helps you save for your future. Unlike a regular savings account, money invested in your pension can earn important tax breaks and grow tax free. When you retire and look for access to your fund, the benefits can be available in a tax efficient way.
PENSIONS
Flexibility
With Tax relief, possible Employer contributions and optional lump sum payments, you can save according to your age and earnings which are set out by the government.
Why take out a pension?
With many living longer than previous generations, a personal pension will give you a standard of living based on your earnings so you can enjoy your retirement the way you had planned whether you want to travel or just enjoy the simple pleasures in life.
The state pension will not be available to claim until you are 68 and on its own will not give you a very good standard of living.
Today, the State Pension (Contributory) is worth about €233.30 per week. We can't predict what will happen, but we do know that starting a pension can give you greater ownership of your future.
What your pension will be worth?
The value of your pension at retirement depends on how much you can afford to put away each month,
the length of time you are making contributions,
the type of pension plan you select and the investment return.
One thing we know is that the sooner you start a pension, the bigger it should grow.
Contributions
How much should I contribute? is one of the most common questions people ask. While there's no minimum amount, the maximum amount you can contribute depends on your age.
| AGE | MAXIMUM CONTRIBUTION BY AGE |
|---|---|
| 29 or younger | 15% of net relevant earnings* |
| 30-39 years | 20% |
| 40-49 years | 25% |
| 50-54 years | 30% |
| 50-54 years | 35% |
| 60+ | 40% |
PERSONAL PENSION
A Personal Pension is a pension plan issued by a life insurance company to an individual. There are no employer contributions made to the pension plan and as the name suggests, the plan is owned by the person who contributes to it.
This type of pension product is most suitable for the self employed or to employees whose employer does not offer a pension scheme. On retirement you can take a tax-free lump sum of 25% of your fund, up to a maximum of €200,000 (as at July 2015). The remainder of your fund can then be invested in an Annuity or Approved Retirement Fund.
Contributions
How much should I contribute? is one of the most common questions people ask. While there's no minimum amount, the maximum amount you can contribute depends on your age.
| AGE | MAXIMUM CONTRIBUTION BY AGE |
|---|---|
| 29 or younger | 15% of net relevant earnings* |
| 30-39 years | 20% |
| 40-49 years | 25% |
| 50-54 years | 30% |
| 50-54 years | 35% |
| 60+ | 40% |
EXECUTIVE PENSION
Designed for Company Directors
An Executive pension is a defined contribution occupational pension plan, issued by a pension provider to an employer, with an employee/director of the company named as the beneficiary of the pension plan.
The plan is held by the trustees on behalf of the employee/director. This type of pension can be set up for any employee or director of a limited company, but is typically set up for owner directors of small businesses. They can also be set up for senior company employees.
Revenue Approval
In order to gain revenue approval and qualify for valuable tax relief, the pension plan must fulfil certain requirements:
1. The scheme must be set up under a trust, where trustees (typically the employer) hold the scheme assets separate from the company assets.
2. Benefits paid out from the scheme must not exceed revenue approved limits.
3. The employer must contribute to the cost of the scheme. It is expected that the employer will make at least 10% of the contributions to the scheme.
4. There is no obligation for the employee to make contributions, but if they do, they can also gain income tax relief within revenue limits.
Tax Relief
Any contribution made by the employer to the executive pension scheme is treated as a tax deductible business expense, up to revenue applied limits. Contributions made by the individual scheme member to his / her executive pension plan are tax deductible for the individual against net relevant earnings.
The income limits are capped to a maximum earnings ceiling of €115,000 since 2011. It is possible to backdate personal once off contributions paid in the current tax year, to the previous tax year, once the contribution has been made before Oct 31st.
It is also possible to carry forward any excess contribution made, in order to gain tax relief in future years.
On retirement, you can take a tax-free lump sum of either: 25% of your fund, or, based on salary and service, to a maximum of 150% of salary. The maximum tax-free lump sum you can take is €200,000 (at July 2014). The remainder of your fund can then be invested in an Annuity or Approved Retirement Fund.
Contributions
How much should I contribute? is one of the most common questions people ask. While there's no minimum amount, the maximum amount you can contribute depends on your age.
| AGE | MAXIMUM CONTRIBUTION BY AGE |
|---|---|
| 29 or younger | 15% of net relevant earnings* |
| 30-39 years | 20% |
| 40-49 years | 25% |
| 50-54 years | 30% |
| 50-54 years | 35% |
| 60+ | 40% |
PRSA PENSION
A PRSA Personal Retirement Savings Account is a personally owned pension that lets you save for retirement on your own terms.
A PRSA or "personal retirement savings account", is a pension plan issued by a life insurance company to an individual.
Contributions can be made to the PRSA by the employer, by the employee or by both. You don't need to be in employment to have a PRSA; however, tax relief will only apply to contributions made from relevant earnings.
It is flexible you can contribute to it whenever you want and stop making contributions at any time.
It is portable so you can take it with you if you move jobs, or opt for a career break.
PRSA versus Personal Pension Plan?
The key difference between PRSA's and personal pension plans, is that employer contributions can be made to PRSA's, they cannot be made to personal pension plans. Another difference is that PRSA's have statutory set charges, whereas personal pension plans do not. However, based on the level of contributions personal pension plans may offer the individual lower charges.
When you retire:
On retirement you can take a tax-free lump sum of 25% of your fund, up to a maximum of €200,000 (as at July 2015). The remainder of your fund can then be invested in an Annuity or Approved Retirement Fund.
Self-Direct Pension
Pensions that let you manage your own investment. Self directed pensions are suitable for experienced investors who wish to manage their fund investments themselves.
AVCS
Additional Voluntary Contributions or AVC’s, are extra contributions you can make in addition to your company pension
AVCs give you the opportunity to grow your pension ahead of retirement, on your own terms
They’re tax efficient – You can claim tax relief against AVCs, subject to revenue limits
AVC PRSA
Members of occupational pension schemes may elect to make AVC contributions to an AVC PRSA, rather than the main occupational scheme. Individuals may split AVC contributions between the occupational scheme and an individual AVC PRSA. If you have taken out a PRSA to make Additional Voluntary Contributions, you must take your benefits from your PRSA in the same way as you take the benefits from the main scheme.
Contributions
How much should I contribute? is one of the most common questions people ask. While there's no minimum amount, the maximum amount you can contribute depends on your age.
| AGE | MAXIMUM CONTRIBUTION BY AGE |
|---|---|
| 29 or younger | 15% of net relevant earnings* |
| 30-39 years | 20% |
| 40-49 years | 25% |
| 50-54 years | 30% |
| 50-54 years | 35% |
| 60+ | 40% |
PERSONAL RETIREMENT BOND
Allows you to bring your pension benefits with you, if you leave your employer's service and have been a member of an Employer Contributory Pension scheme.
What is a PRB?
A Personal Retirement Bond (PRB) is a personal policy that is set up by trustees of a pension scheme to provide retirement benefits for a former member of the scheme. If you leave a pension scheme, you can bring your pension benefits with you by having the value of your fund transferred to your own name and invested in a bond.
How does it work?
When you've decided to set up a Personal Retirement Bond, the next step is choosing how best to invest the money you have. We can invest it in one or more of our range of unit-linked investment funds. You'll have access to a wide range of different assets, and varying degrees of risk, so you'll be sure to find a solution that works for you.
When you retire you can decide how you would like to benefit from your PRB. Subject to revenue rules at the time, you may decide to receive part as a lump sum. The remainder of your fund can then be invested in an Annuity or Approved (Minimum) Retirement Fund A(M)RF.
What PRBs mean for you
Control - You can take personal control of your pension when you move jobs.
Choice - You choose the funds that your money is invested in.
Growth - Any investment growth is tax-free.
Who is this product for?
If you're planning to leave the company you currently work for, and you're part of the group pension plan, a PRB could be a great option for you. A PRB will also be suitable if you decide to leave a company pension scheme for any other reason, or if the scheme is winding down.
After Retirement
When it comes to your retirement, you've plenty of options.
How do I start receiving my pension?
Before you start receiving your pension payments you'll need to decide how you would like these payments to be made. You could decide to receive your pension as an, Approved Retirement Fund (ARF), which allows you to reinvest your pension subject to minimum requirements. Annuity, which pays you a regular income from your pension fund. Our Financial Planning Team can explain more about these, e mail us at jason@alchemy.ie
Early Retirement
Early retirement takes careful planning. While there is no mandatory retirement age in Ireland, your employment contract may state when you can take early retirement. Employees who plan on retiring early may need to build up a larger fund to help them through those additional years of retirement. Usually, the minimum age at which you can start receiving pension contributions is 50.
Annuity
With an Annuity you will receive a regular income for the rest of your life. Annuities may be more suited for people who wish to avoid potential risks, and would prefer a guaranteed income for their retirement. There are three choices you need to make when purchasing an Annuity:
Single Life or Joint Life - A Single Life Annuity is payable for the rest of your life only. With a Joint Life Annuity, a percentage of your pension is payable to your spouse after you die.
Guaranteed Period - If you choose to include a guaranteed period, your pension will be payable for a minimum of the guaranteed period, even if you die during that time.
Escalating or Level - A Level Annuity means your payments remain the same throughout your life. An Escalating Annuity means your payments increase at a fixed rate each year.
Contributions
How much should I contribute? is one of the most common questions people ask. While there's no minimum amount, the maximum amount you can contribute depends on your age.
| AGE | MAXIMUM CONTRIBUTION BY AGE |
|---|---|
| 29 or younger | 15% of net relevant earnings* |
| 30-39 years | 20% |
| 40-49 years | 25% |
| 50-54 years | 30% |
| 50-54 years | 35% |
| 60+ | 40% |
APPROVED RETIREMENT FUND
An ARF allows you to invest all or part of your pension fund after you retire. You can decide on the type of fund you would like to invest in, and the amount of risk you're comfortable with. With an ARF you can still withdraw from your fund on a regular or ad hoc basis (subject to income tax and USC. PRSI may also apply).
But it's worth remembering that since your pension is still invested, its value may go down as well as up. To set up an ARF you must have a guaranteed pension income of at least €12,700 per annum or have invested €63,500 in an Approved Minimum Retirement Fund (AMRF) and/or Annuity. The minimum requirement for an ARF stated is the current Revenue limit.
Contributions
How much should I contribute? is one of the most common questions people ask. While there's no minimum amount, the maximum amount you can contribute depends on your age.
| AGE | MAXIMUM CONTRIBUTION BY AGE |
|---|---|
| 29 or younger | 15% of net relevant earnings* |
| 30-39 years | 20% |
| 40-49 years | 25% |
| 50-54 years | 30% |
| 50-54 years | 35% |
| 60+ | 40% |