Retirement Planning - PLEANÁIL SCOIR“It’s not how old you are, it`s how you are old.” ― Jules Renard
Retirement Planning – There will come a point in all of our lives when we will stop working. Yet, to maintain living standards at a proportionate level to that of pre-retirement, you will need a plan…
A pension should of course be a central plank of this retirement plan. Why? Simply put, there is no other means to save that is as diversified, as flexible or as tax efficient as an individual pension.
Simple Pension Facts:
1 .Direct shares, Investment Funds, ETFs, Direct Property can all be utilsed within a pension.
2. Your contributions(within revenue limits) can qualify for relief up to 40%.
E.g A €10,000 contribution could provide you with €4,000 of tax relief.
At current deposit rates of 1% it would take 52 years to get this return on a deposit!
3. All of your investments and fund income grow tax free! No CGT( 33%) , No DIRT (41%) , No Income Taxes(up to 52%)!
Tax free lump sum of 25% of the fund is available.
Where over 65, tax credit available where income is less than €36,000 per annum there are no income taxes. Where used probably pensions are very tax efficient and very good at providing retirement income.
Social Welfare Contributory Pension
Currently, this is set at €233.30 per week(Recently increased!). Important changes to the contributory old age pension have also been made in recent budgets. Retirement age is now 66 for those born prior to 1955(transition pension abolished), 67 for those born prior to 1960 and 68 is now the retirement age for those younger than this. This represents a significant reduction in income for those looking to retire at age 65 in the future.
Currently there are 5 workers to every 1 pensioner, in 2060 this is projected to be a ratio of 2:1!
- Can you afford to switch from a higher level of of pre-retirement income to an income of this level per week?
- Are you confident that the State will continue to provide benefits at this level in the future? Remember that currently there are 5 people working for every retired person, in the future this ratio is forecast to fall to 2:1.
- Do you want a level of financial independence at retirement whereby you are not solely reliant on the state for benefits?
A private pension plan is one of the best ways of meeting the need for retirement planning in a way that is straight-forward, flexible and offers the widest choice in terms of investment options and risk management.
Executive Pension Plans are flexible and managable plans that can be set up for directors of companies.
They can be set up on an individual basis and can be of huge benefit to an individual director planning for retirement.
They are a flexible in terms of their investment choices available, with not only traditional unit linked funds available but also Shares, Property, ETFs and deposits available.
There are a number of pension options available for self-employed individuals who must provide for their own retirement benefits.
These include both Personal Pensions and PRSAs. Advice on the solution best suited to your individual needs is essential. Flexibility and range of choice are again key and getting the right advice based on attitude to risk and getting the best plan to suit your needs can have a huge impact on your potential fund at retirement.
Company Scheme members
Individuals who are members of an employer sponsored Defined Benefit or Defined Contribution scheme have additional scope for contributions via the PRSA AVC route. Not many employees are aware that they are not restricted to the AVC scheme provided by their employer and PRSA AVC options can provide greater investment options than traditional AVC schemes operated by the employer scheme whilst also offering more competitive charging structures. Getting the right advice on the solution best suited to your needs is essential to getting the best return for your AVC contribution and maximising your fund at retirement.
PRSAs and Employees – Employers can contribute to a an employers PRSA and get tax relief on the contribution. Employees will get a tax credit which will offset the BIK payable. Employers can use this to incentivise staff and increase benefits without increasing employer PRSI and employees get a tax free benefit! As of 2016 USC on these contributions has been abolished.
Paid Up pensions/Leaving an Employer Scheme
Individuals who have paid up schemes and/or have left emloyment also have the option to transfer their paid up pensions to Personal Retirement Bond(also known as a Buy Out Bond) and have an additional option to transfer to a PRSA or to a new employer scheme. All of these methods of transfer have advantages and disadvantages and the decsion on the best course of action should be based on independent advice taking into account your personal circumstances.
Individuals without earnings
In the event that you are without reckonable earnings due to unemployment or working in the home you can still make pension provision via a PRSA. Any contributions made can be offset future earnings should you return to the workforce in the future.
In the event that you are at retirement age it is essential to get the right advice on the decisions you will have to make in order to maximise your pension fund and to maximise the income that you can get from your pension. Taxation considerations and providing for your spouse or next of kin will be key. The retirement solution may involve purchasing an annuity, a guaranteed income for life, or investing in an ARF/AMRF.
Retirement Planning and Independent Financial Advice
The decisions with regards to retirement planning can have a huge impact on your quality of life in old age. Independent advice at all stages of retirement planning is essential.