The tax man, Iove him or hate him there is always a way to beat him and hold on to some of your hard-earned income. Firstly, incase you have forgotten about the tax deadline date, you could still reduce your 2016 tax bill and/or get a tax refund! I know pensions are not the sexiest topics in the world but nonetheless, there is an important tax deadline coming up on the 16th November. Pensions are a great way to beat the tax man, hold on to some of your hard-earned income and save that few quid for your dream retirement. A contribution towards a pension can still be used to reduce your 2016 tax liability and/or get you a tax refund. Critics have argued both sides of the argument and there seems to be blurring the line between tax evasion and tax avoidance. The former involves breaking tax rules and is, of course, illegal. The latter involves sticking to the rules but planning your finances carefully so you don’t pay more tax than you have to (and that’s why we’re here). If you were to ask me What’s the difference between tax avoidance and tax evasion? …. About 20 years.
How do you beat the tax man, with 40% tax relief for higher tax payers and 20% for lower tax rate payers. So, assuming you are a higher rate tax payer for every €100 paid towards your pension the tax man will refund or reduce your tax liability by €40, pay €1,000 = €400 tax reduction or rebate.
Yes, I know your next question is, “but do pension make sense? ” Below I have listed a few reasons why you should consider contributing towards a pension.
At retirement could you survive on €238.30 per week?
This is the current personal state pension. Think of your bills, holiday, car, socializing and of course your day to day expenses. Starting is a pension is undoubtedly one of the smartest decisions you can make. It could help ensure a brighter, better future to look forward to. When you’re choosing a pension, having all the information you need is key. So we’re here to help you select one that’s right for you.
The state pension age is increasing to age 68 for those born in 1961 or younger. There is evidence to suggest that this will keep increasing with life expectancies increasing. At Alpha, we like to make things as simple for the client as possible in what is a jargon-heavy industry. Simply put, currently, in Ireland, there are 5.3 adults of working age for every pensioner, but this ratio is predicted to change to 2.1 to 1 by 2050. As Life expectancy for those born in Ireland is now is 78 years for males and 82 for females and is expected to increase year on year. The idea of retirement can take some getting used to. It is a time when all the major points in our life will change – our daily routine, our financial means, our role, status, and identity are all affected. Preparing yourself, understanding the time ahead and taking control are all key parts of the planning process.
Other pension benefits
- Tax relief of 40% or 20% available, as above …. €1,000 contribution = €400 tax reduction or rebate etc….
- Tax free growth on pension funds
- Tax freelumpsum of up to €200,000 on retirement
- Tax free death benefits
- Tax efficient income options at retirement
What are my options?
You will have a number of options at retirement and, within certain Revenue rules, you can combine options in whatever way suits you. The number of options available to you at retirement depends on the type of pension you have.
The four main options at retirement vary, but are broadly:
- Buy an annuity (i.e. an income in retirement).
- Invest in an Approved Retirement Fund and/or Approved Minimum Retirement Fund (these two we can talk about in another blog).
- Take a taxed cash lump sum
If you want to get back some of your hard-earned income form 2016, do not delay, get good independent advice on your options from an established Financial Broker (like us).
If you want to retire wealthy, then plan for it!
Visit Alpha Wealth’s website or give one of our advisors a call on 021 2061780