Retirement


Retirement

The average person can now expect to live for up to 22 years after retiring, which means that careful planning is required for this period of our lives. Retirement today is very different from what it was in the past and retired people today like to enjoy a busy lifestyle doing the things they could not do when they were working. You do however need to fund these activities and this is where pension funds play a part.

The earlier you begin planning for retirement the better as you have more time to build up a bigger fund. The longer you leave to start your pension the higher your contributions will have to be to build up your fund. The good news is that pension payments are deductible against your tax up to certain limits, so as well as contributing to your future, you are also paying less tax today.

Pension funds can be managed in many ways, some people like to manage their own funds using Self Directed or Self Administered plans. Others prefer to leave it to fund managers. It's even possible to have both options.

Pre-Retirement

A Personal pension can be taken out by anybody who is self employed or by an employed person who is not part of a pension scheme. Only an individual can contribute to a personal pension policy. An employer may not contribute to these policies on behalf of an employee. Contributions can be made on a regular or adhoc basis to a policy and these are generally used to purchase units in funds chosen by the policyholder. Tax relief is available on all pension contributions up to certain limits. There is a current earnings limit of €115,000 (2016).

The limits are based on age and are as follows:

  • Under 30 – 15% of earnings
  • Under 40 – 20% of earnings
  • Under 50 – 25% of earnings
  • Under 55 – 30% of earnings
  • Under 60 – 35% of earnings
  • Over 60 – 40% of earnings

  • At retirement up to 25% of the fund may be taken as a tax free lump sum and the remainder is used to provide an income for your retirement. For further details, be sure to check our after retirement section.
    A PRSA is a portable pension product which you can take with you throughout your working career even if you move jobs or want to take a career break. Like a personal pension, it is used to build up a fund for when you retire. Unlike a personal pension, both you and your employer can make contributions to a PRSA. Anyone can take out a PRSA regardless of your employment status, whether you are employed or self - employed. Another great feature of a PRSA is that its flexible, meaning you decide how often and how much you wish to contribute. Tax Relief is available up to certain limits offering a significant saving. PRSA's have a wide fund choice.

    Did you know:

  • Under certain circumstances you can transfer your old company pension schemes into a PRSA which means they are under your control and ownership.
  • At retirement , 25% of the fund is available to you as a tax free lump sum.
  • PRSA AVCs can be used to top up your pension fund independently of your scheme – you will probably get better value too.
  • A Buy Out Bond is a product that is commonly used as a way to transfer your pension fund from your current employer’s pension scheme when leaving employment. Once the funds are transferred it is invested in a fund or series of funds in which you can choose and now fully control. Buy out bonds give you great flexibility, meaning you have the ability to switch funds or transfer them at any stage to another company or new employer pension scheme. A great feature of Buy Out bonds is the ability to take your retirement benefits at the age 50 and on, unlike most pensions.

    If you don’t move your funds from your current employer’s pension scheme you will have no control of how the funds will be invested and you will have to go back to the Trustee of the Scheme to get their signatures when you do decide to take the retirement benefits.
    An Executive Pension is established under trust and is designed to build up a fund to allow a company provide retirement benefits for a director and/or a key employee.

    The following are some of the benefits of retirement planning through your company:

    • Contributions made by the company to the plan can normally be fully offset against Corporation Tax
    • No benefit in kind (BIK) implications
    • Under current legislation, any growth earned by your pension fund is tax free
    • Tax free cash at retirement, subject to Revenue limits
    • Possibility of early retirement from age 50 – you will need to surrender shareholding and sever all links with the business
    • The company can usually make much higher contributions to a pension plan than an individual in their own right - subject to Revenue maximum funding limits
    • Employee contributions are tax deductible by up to 40%* of salary depending on age and subject to an earnings cap, currently €115,000

    An Executive Pension gives you:

    Contribution Options

    The flexibility at the outset to choose the amount you and your company contribute.

    Investment Options

    Which allows you to tailor your investments to suit your individual attitude to risk.

    Retirement Options

    That suit your circumstances When you retire, there is flexibility as to how the benefits can be taken. This will depend on rules that are in place at the time you take your retirement.

    Your options may include:
  • A tax free lump sum
  • A taxable lump sum
  • An income (pension) for your lifetime
  • An income (pension) for your dependants on your death in retirement
  • Investing in an Approved Retirement Fund (ARF) and/or Approved Minimum Retirement Fund (AMRF)

  • Life Cover Benefit

    Life Cover can provide your family with a lump sum payment in the event of death before retirement. An Executive Pension Term Assurance plan is a tax efficient way of providing this cover.

    Post-Retirement

    The traditional way of purchasing income for life – the holder receives a regular payment from the insurance company for the duration of their and their spouses life.

    The amount of regular pension income you get depends on a number of things such as:

  • The amount of money from your retirement fund that you invest in the annuity
  • If you are male or female The type of annuity you want
  • Your age and state of health when you buy the annuity
  • The percentage of your investment that the life insurance company agrees to pay you as a regular pension – this is called the ‘annuity rate’

  • An Approved Retirement Fund (ARF) is a personal investment fund where you can invest the balance of you pension fund after you have taken your lump sum at maturity. It can be used to give you a regular income, which will be subject to income tax, PRSI and USC. Any money left in the fund after your death can be left to your next of kin.

    • Before you invest in an ARF you must set aside €63,500 in an AMRF (Approved Minimum Retirement Fund) until you reach 75 or you must buy an annuity with this money (€63,500) or a combination of both or you must have minimum income threshold of €12,700 a year.
    • You must withdraw a minimum of 4% of your fund each year (where funds are under €2 million) from the year you first reach 61.
    • The minimum withdrawal will increase to 5% from the year you reach 71 (6% for funds over 2 million).
    • An ARF or AMRF can be inherited.

    You must take out an AMRF if you do not have a minimum income threshold of at least €12,700 a year already in place or have not used €63,500 to buy an annuity.

    Pension FAQs

    How much should I save for my pension?

    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.

    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.

    What happens to my pension if I die before I retire?

    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.

    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.

    This Pensions video was provided by Zurich Life Pensions

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