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Pensions

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Pension & Retirement Planning

Benefits of saving for retirement

A pension plan is basically a long term investment plan, where you save regular amounts or lump sums (called ‘contributions’) to build up a retirement fund.
If you are earning an income, you will get tax relief on your contributions to your pension plan that you would not get from other forms of savings. However, you will pay tax on your income from your pension in retirement.

For every €100 of your income that you invest in a pension plan, the real cost to you after tax relief is less. It costs you:

  • €80 if you pay tax at 20%
  • €59 if you pay tax at the top rate of 41%  

If you are an employee, the real cost will be even lower as you can also get some relief on the income levy, PRSI (pay-related social insurance) and health levy payments. If you are a member of an employer pension plan, you don't have to pay tax on any contributions your employer makes.

The maximum in earnings that you can take into account for pension tax relief is subject to Revenue limits.

The percentage of your income you can get tax relief on for pension purposes depends on your age. It increases as you get older.


Your age

% of your income you can get tax relief on

Under 30

15%

30 to 39

20%

40 to 49

25%

50 to 54

30%

55 to 59 

35%

60 or over  

40%


Tax-free investment growth 
You don't have to pay tax on the growth of your pension fund.

Tax-free cash when you retire
When you retire you can 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. It is important to remember that your regular pension income will be subject to income tax.

Planning for your retirement –Introduction

Planning for your retirement by putting in place a pension might seem like a complicated task, but the earlier you  get started the better, as you will have more time to make contributions and more timefor your pension fund to grow in value.

How pension plans work

Life assurance companies & investment companies are the main providers of pensions in Ireland.They employ fund managers to invest your cpntributions in one or more pension funds.

These funds are used to buy and sell assets , such as shares,bonds,property and cash.There are many types of pension funds and each fund is invested in a different mix of  these types of assets.

Foe example, a typical pension fund might have :

50% of its assets invested in shares
25% of its assets invested in bonds
15% of its assets invested in property
10% of its assets invested in cash

The value of the pension fund rises and falls, depending on the performance of the shares , property and other assets in which it invests.The fund is expected to grow  by a certain amount each year but this is not guaranteed and fund values go up as well as go down over the years.The value of your fundwill be reudced by any fees and any charges you have to pay.

Your pension fund is a long-term investment that you should ideally keep for 20 to 30 years or longer.This gives enough time for your fund to recover growth if it falls in value.

Note- You get tax relief on contributions to your pension.

Getting the best out of your pension

To get the best out of your pension, read our questions to ask and dos and don’ts. You should also keep tabs on your pension so you know how it is performing.  
Questions to ask

  • Am I eligible to join an employer pension plan? If not, does a  personal pension plan,a standard PRSA or a a non –standard PRSA best meet my needs?
  • What kind of income do I want when I retire, over and above the state pension? How much do I need to contribute to reach my 'pension target'?
  • What fees and charges will I pay both initially and yearly? Will my contributions increase each year in line with inflation? If so, what charges apply?
  • Which investment funds can I choose from? Can I switch between funds? Will I be charged for this?
  • What is the estimated future value of my pension, assuming a set rate of fund growth each year?
  • Are there any death-in-service or disability benefits for me?
  • How flexible is my plan? Can I stop paying contributions for a time, increase or reduce my contributions?
  • Do I need to provide a pension for my dependants after I die?
  • Have I any other assets I can use in retirement such as investment property, savings or investments?
  • What are the advantages and disadvantages of investing in an ARFover buying an annuity?

Dos and don'ts

Dos

  • Do start saving for your pension as early as you can. The sooner you start, the better your chances of building a large fund for your retirement and the less you will have to save each month.
  • Do make sure you join your employer pension plan if you are eligible to do so.
  • Do consider an employer's pension benefits when changing jobs.
  • Do ask your employer to make a standard PRSA available to you if there is no employer pension plan in place or if you can't join it within the first six months of your service.
  • Do ask about making additional voluntary contributions (AVCs) if you are in an employer pension plan and need to boost your pension. If you are a member of the public sector superannuation scheme you should ask about purchasing notional service and also compare the benefits of AVCs and buying notional service particulary if you will not have 40 years service at retirement age. You can get more details from Irish Civil Service Pensions Information Centre.
  • Do keep up to date on how your pension is performing. Ask for valuations if you do not already receive them.
  • Do find out how much you will pay in charges,both initial and yearly, before buying a pension. If you are unsure, ask your pension provider or financial advisor to explain the charges fully to you.

Don'ts

  • Don't assume your fund is on track to meet your pension needs. Review it regularly and increase your contributions if you need to and if you can afford it.
  • Don't be put off by jargon. Ask questions and take time to understand the issues so that you make the right decisions for your future.
  • Don't feel pressurised into buying a pension plan from a pension company or financial advisor just because you have asked them for information or advice.
  • Don't forget about pensions that you had before, for example, a work pension that you had with an old employer. Contact the pensions administrator, find out the value of your fund and see whether you can transfer it into a new pension.
  • Don't forget to check if you are eligible for the state pension by contacting the Department of Social and Family Affairs.

Keeping tabs on your pension

While buying a suitable product is the priority, it is equally important to regularly review your pension plan to see how it is performing and to make sure you are contributing enough to give you the income you need at retirement, especially if you have a defined contribution plan.
You should also check that your charges are in line with your pension contract. If you are a member of a defined contribution employer pension plan, you should get a personal benefit statement once a year. Members of defined benefit plans.can request a similar statement from the trustees of their fund.
If you have a PRSA, you should get:

  • an annual statement of 'reasonable projection', showing the pension benefits that you can expect to get from your PRSA at retirement
  • a six-monthly report on the performance of your PRSA fund.

If you took out a personal pension plan after February 2001, your pension provider must send you a statement at least once a year. If you took it out before then, you should ask your financial advisor or pension provider for a statement if you have not received one.