This depends on the age you start contributing, whether your employer also contributes to your pension plan and what amount of pension income you want for your retirement. See our online pension calculator which will give you some idea of the amount required.
Impartial advice for your financial future
Occupational Pension
If you are a proprietor, director, a manager or an employee, you may become a member of an Occupational Pension Scheme which is set up by your employer. There are a number of different terms for Occupational Pension Schemes which essentially all mean the same thing:
- Company Pensions
- Group Schemes
- Executive Pension
- Directors Pension
Defined Benefit or Defined Contribution?
There are a two main types of Occupational Pensions: A Defined Benefit Scheme pays you a pension based on a percentage of your salary. The maximum permitted pension is 2/3rds of your final salary. This type of scheme is most common for public service employees and in older private pension schemes.
A Defined Contribution Scheme pays into a fund which you can use to purchase a pension at retirement. This type of scheme is growing in popularity due to the costs of funding a Defined Benefit Scheme. The Defined Contribution Scheme places the risk of providing the pension from the employer to the employee.
AVCs
If you are currently a member of an occupational scheme, you may be paying Additional Voluntary Contributions to your scheme. AVCs can be used to increase your lump sum at retirement or to fund a purchase of buy back years if you are in the public service. Despite the perception you may choose any provider in the market for an AVC and it does pay to shop around. By accepting the default AVC provider to your scheme you may end up paying higher entry charges. Higher entry charges will have a detrimental impact on the value of your fund over time. It is possible to have a PRSA AVC with any occupational scheme which will offer you a keener charging structure.
Tax Savings
For family run businesses pensions are an efficient way of transferring company funds into personal assets without paying tax as you would if taking salary. As with all pension plans, a tax free lump sum is available at retirement. This is generally based on the number of years of service.
Proprietary Directors have access to Approved Retirement Funds (subject to certain conditions) which gives them greater flexibility in retirement.
Greater levels of contribution are generally permitted under a company pension structure than under a personal pension structure, so there is greater scope to build up a larger pension fund.
Did you know?
- Company Pensions are set up under Trust and require a 'Trustee'. Since 2010, Trustees are legally obliged to undergo regular training to ensure they are up to date with their duties.
- Under pension rules you do not need to physically retire to draw down your pension benefits if done at the age of 60 or later, however your terms of employment may require you to retire. Directors who have their own companies usually have more flexibility in this regard.
- Proprietary Directors may take early retirement at 50 if they sever all personal contact with the company i.e. sell their shares and physically retire.
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Frequently Asked Questions
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How much should I save for my pension?
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Do I need Additional voluntary contributions (AVCs)?
Additional voluntary contributions (AVCs) are extra payments you choose to make to your pension fund. You may need them if you find out that your existing contributions may not be enough to give you your expected income at retirement.
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What happens to my pension if I die before I retire?
This depends on whether you have an employer pension plan, a personal pension plan or a personal retirement savings account (PRSA). If you have an employer pension plan there will be rules about what the fund will pay out to your dependants (people who rely on you for financial support) if you die ‘in service', (that is, while you are still employed). These are called ‘death-in-service' benefits. Death in service benefits allow for a tax free lump sum and an annuity to be paid to a surviving spouse. The maximum tax free lump sum payable is 4 times your salary. Ask your employer for information about what your plan provides. You should take this into account when deciding how much life insurance cover you need, or when making a will.
If you have a personal pension plan or PRSA, the value automatically passes to your estate for the benefit of your dependants if you die before you retire. You need to consider the value of your pension plan when deciding how much life insurance cover you need, or when you make a will. -
What pension do I get if I retire early due to ill health?
Some employers provide an ill-health pension for their employees if they have to retire early because of illness. If your employer does not provide these benefits, you may want to consider taking out some form of salary protection insurance such as income protection insurance. This type of policy is not the same as a pension but it can replace part of your income for as long as you are unable to work due to ill health.
If you have a personal pension plan or PRSA and If you become permanently unable to work due to ill-health and have to retire, you can immediately draw on your pension plan, no matter how young you are.
As with voluntary early retirement, the amount you get will be much less than if you contributed up to your original expected retirement age because you have paid fewer contributions and these have been invested for a shorter time. -
I've just been made redundant. What are my options with my pension?
Whenever you leave employment through voluntary means or by redundancy, you will usually receive a letter from your former employer outlining your options concerning your pension. You should study them carefully as this is an important decision for you to make. The options open to you include transferring your fund to a new employer's scheme if you have found a new position, transfer it to a Buy Out Bond which transfers your fund from your former employer's responsibility and into yours or transfer it to a PRSA. You can also choose to leave the fund under the care of your former employer but unless it is a Defined Benefit Scheme, you should give careful consideration to moving it. In Ireland there is no pension protection scheme and pension schemes may become insolvent leaving you with no pension. It is important that you consider all of the facts carefully if you find yourself in this position.
