What is a pension – retirement planning
Pensions can be very confusing and not everyone understands exactly how a pension works. Firstly, a pension is basically a long term savings plan to help you with retirement planning. And to live the lifestyle you deserve once you are retired. A pension comes with really effective tax benefits. The main reasons an individual would start a pension is to help them plan for their retirement. Which will provide them a steady income while they are retired. The second reason an individual would start a pension is to simply reduce how much tax they pay. For every €100 that you put into a pension it will reduce your tax bill by either €20 or €40. This is depending on the level of income that individual has.
Tax Benefit
The second big tax benefit from a pension’s perspective is that any interest or investment growth that your contributions earn whilst in a pension is completely tax free. This means that you are getting years upon years of compounding tax free interest which is great for your pension’s growth. And is the most effective way of saving money. Finally, once you come to retirement you can take out quite a lot of your pension fund as a tax free lump sum.
Therefore, you will benefit from tax relief on the way in, tax relief on the way up, and tax relief on the way out. A pension is a really effective way to reduce your tax bill, accumulate wealth for your future, and replace any income that you may lose once you retire.
State Pension – What is it?
Is the State pension suitable for retirement planning? We would always recommend that individuals start a private pension as the state pension is quite unsustainable in our opinion. The State Pension currently has about 670 thousand people claiming it and is €248 per week. The State pension is currently paid to people from the age of 66 who have enough Irish social insurance contributions. To qualify for the State pension you must have started paying social insurance before reaching 56 years of age. You must have paid at least 520 full rate social insurance contributions and have a yearly average of at least 48 paid and/or credited full rate contributions from the year you started insurable employment until you reach 66 years of age.
Will qualifying age increase?
However, there are talks of rising the State pension qualifying age could very well rise up to 70. Do you think you could live off €248 per week?
We recommend that you start a private pension. This will help ensure that you can live the life you deserve when you retire. Many believe the State pension is only going to get worse as the years go on.
We supply pension advice to individuals to help them look at their existing pension and get some advice on how you’re funding it, to look at previous pensions from old employments but also if you want to start a pension. Let us help you with your retirement planning.
Tracking old pensions – we can help you
It’s very important to review pension schemes that you might have left behind in old employments. There are billions sitting in old pensions gathering dust and we encourage everyone to ensure they are tracking their pension to avoid the inconvenience of having to re-visit old employers in 20 to 30 years’ time to access your pension.
We recommend that you always take your pension with you when leaving a company and to transfer it to a PRB (Personal Retirement Bond) which simply moves the pension into your name so it gives you much more control over your pension, it’s not linked to an employer, and you can generally access it from age 50 onwards. Most company schemes have access between the age of 60 or 65 therefore transferring your old employer pension scheme is a more attractive option as it gives you early access and more control. If you leave your pension behind in an old employer’s scheme you are very restricted in how those funds are invested.
We have reviewed a whole host of pension schemes from some of the biggest companies in Ireland. Yet, some of the funds within those schemes are consistently under performing and failing to meet their benchmarks. By moving the fund over to a PRB gives you the choice of what provider it’s going to. And how it’s invested so you can be 100% confident that it’s being invested in the best funds in the market. Rather than being restricted to what that old scheme provides. Lastly, there is very little management or advice offered in the realms of corporate pension schemes. We’ve had clients that have left companies 20 years ago and nobody ever got in touch with them in relation to that pension scheme which doesn’t sit well with lots of people.
Transferring
By transferring your old employer pension over to a new provider and having it in your own name with an advisor and a provider you trust and funds that have really good track records it will give more confidence in that scheme and ensure you are on plan for a decent retirement.
Pensions – What is the difference between an Annuity, ARF, and AMRF
An Annuity is a contract with a life insurance company. That will pay you a guaranteed, regular pension income for life in return for you paying a fixed sum of money to an insurance company from your retirement fund. The income that you receive will be subject to income tax and USC. An annuity is a very popular retirement choice in that it offers you complete peace of mind. If you want a steady income for life then an annuity is for you. However you cannot pass on remaining funds to your next of kin if you pass away.
An Approved Retirement Fund (ARF) is a personal retirement fund where you can keep your money invested after retirement. You can withdraw from it regularly to give yourself an 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. An ARF gives you more control over how your retirement is managed. It is an investment plan with the intention of growing your funds during your own retirement. This is also based on your own investment strategy.
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. To invest in AMRF you must be a retiring member of an occupational scheme or an individual who holds a 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.
Pension Advice – retirement planning
The best advice we can give you is to start a pension early. However, it’s never too late to start a pension. We are here to help you decide what kind of life you want to live in retirement and then we can help you towards achieving that goal.
We will ensure you have the right pension plan to suit your personal needs and goals. By having a discussion with our advisors we can help you determine how much you need to be putting into your pension monthly. The key factors surrounding how much you put into your pension each month involve your age, your salary, and your planned retirement age along with other factors.
We want to help you live a life that you deserve once you retire and to live comfortably each week without having worry about having insufficient income. As we mentioned previously pensions are a very tax efficient way of saving and the earlier you start the better your retirement pot is most likely to be.
Pension Talk
We can assist you with reviewing your pension. Let us help you ensure that you have your money invested in the best funds in the market. We can give you an estimation of what value your pension will be when you retire. Make sure to catch up on our previous pension webinar here
State Pension: Why Retirement Planning Is Important
Is the State pension a poor form of retirement planning?
We don’t believe the state pension is going to be sustainable for individuals in the future and highly recommend starting a private pension plan. The Government are due to make changes to the State pension in the upcoming budget.
A LEADING charity has blasted plans to increase the pension age. As the Commission on Pensions looks set to recommend a gradual increase towards the end of the decade.
The Pensions Commission report will recommend that the State pension age rise to 67 between 2028 and 2031. Before going up to 68 by 2039, it’s reported.
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ALONE do not agree that the pension age should be increased
And charity ALONE said they were “disappointed” by the recommendation. As working into your late 60s and beyond should be an option, not an obligation.
CEO Sean Moynihan said. “We do not agree that the pension age should be increased”. And believe that keeping the pension at 66 is sustainable.
“We are aware of the arguments brought forward by proponents of pension age increase. Maintaining that the current pension age will be financially unsustainable for the State.
“While pension expenditure is set to increase from 7.4 per cent of GNI in 2019 to 12.3 per cent in 2070. Age-related expenditures at the other end of the life-cycle, such as education, are set to decrease.