Retirement & Pension Planning Ireland.

Being ready for retirement is a financial planning question as well as a psychological one. From a financial perspective, you need to start with a tax-efficient way of accumulating wealth that is free of all taxes and free of risk, i.e. that it cannot be confiscated if you ever go bankrupt etc. 

Are you mentally prepared for the shift that will happen in your life when your career ends? Are you looking forward to having lots of time off or does it create a feeling of dread?

Many people manage to have incredibly fulfilling post-retirement lives and they achieve this through careful planning. Having a sound pension plan in place tends to make the entire process more manageable and makes it something to look forward to. 

A good pension plan will allow you to forecast you income in retirement and therefore plan accordingly. In our minds it’s by far the most important investment of a working adults life.

Many people were very sensible early in life and planned for their retirement by investing in the right kind of schemes and managing their financial future. However, many others did not. We didn’t all have the opportunity to become members of company pension schemes or to invest in private pension arrangements. Consequently, financial institutions have created a number of ways to help people prepare for retirement later in life.

If you have an occupational pension with your company you may be able to access it from the age of 50, depending on the rules of your company and the trustees of the pensions scheme.

Personal Retirement Savings Accounts (PRSAs) are also accessible from the age of 50, particularly if you have left employment or experienced illness or other conditions that affect your ability to work. 

In general, personal pension arrangements allow for drawdown of your pension pot from the age of 60. Again this is subject to the rules of the scheme itself. 

Age to get State pension 

The State pension is currently available from the age of 66 in the Republic of Ireland for those people who have paid enough PRSI payments. The State pension is not means tested. You can have other income, including paid income, and still receive it.

The money you invest in a pension scheme can benefit from tax-free allowances. It is based on tiered thresholds according to your age and the process is designed as an incentive to save for retirement. The following outlines the tax free allowances depending on your stage of life. It indicates the amount of tax-free earnings you can save per threshold. There is an upper limit of €115,000 that can be saved tax free.

Note: The contributions made are eligible for tax relief up to a maximum of €115,000

If you plan to retire early you have options around how it will affect your pension scheme and how soon and how much you can draw down immediately. If you are in an occupational scheme such as a defined contribution pension scheme with your company and retire early, you are entitled to draw down a tax free lump sum representing 25% of your total pension pot value. This is an attractive option to anyone choosing to take early retirement and can be a useful lump sum at a stage of life when it can be put to very good use. 

Many people use this lump sum to travel, improve their homes or simply reduce other debt that they are carrying at this time, thus making their retirement period easier.

The term AMRF stands for Approved Minimum Retirement Fund. When you reach retirement age or take early retirement you will have the option to transfer your pension into an Approved Retirement Fund or an Approved Minimum Retirement Fund (which are no longer available) . These are investment funds built from the residual amount remaining in your pension pot after you draw down. The goal is to ensure you have a guaranteed income of €12,700 per annum, including the State pension. 

An Approved Retirement Fund is a personal pension fund set up by a financial company such as a pension provider. It allows you to pay into it with contributions of varying sizes and these contributions are used to invest in your future pension pot. It differs from a contributory pension in that it is not tied to a job and you control the size of your contributions. 

Many people take out an ARF in addition to their normal pension arrangement with their company to ensure that they access the very best benefits in the pension market. If you feel that this is something that you would like to explore, then contact an independent pension advisor for advice on your specific circumstances.

You are also free to decide the size of the withdrawals you make from the fund during retirement. From the age of 60 you are required to take a minimum of 4% but you can also take more than that if need-be. Obviously the downside of this is that if you take too much in a short period of time you may be left with very little left in the fund in the later years of retirement.

Yes, you will be taxed on withdrawals from your ARF. 

An imputed distribution is an assumed withdrawal of a certain percentage from your ARF or Vested PRSA. You must pay income tax, PRSI and USC on at least this amount each year. Actual distributions from your ARF and/ or Vested PRSA each year can be used to reduce your imputed distribution liability.

An ARF is a flexible pension scheme that suits people’s lifestyles and changing incomes. You have more choice over contribution levels and opportunities for drawdown. 

There are no limits to withdrawals, withdrawals are tax-free and if you die your funds will be passed to your partner or children. In the case of children receiving the benefit of your pension, they will pay a 30% tax on the fund.

We are telling you this to be totally transparent:

An Annuity is a simplified pension arrangement that guarantees you a set monthly payment in retirement. It is essentially a contract between you and an insurance company over a long period of time that manages your contributions to a fund that ultimately pays out a monthly retirement payment. 

You will be given a Transfer Value when you are considering moving your pension to another financial product. This is the amount of money you have accumulated over your working life in your pension pot. Your current provider will be able to give you this information. 

You can expect to receive a document that sets out your transfer value; details of any benefits you have built up over the years; what costs might be accrued to you by transferring (exit fees and charges); technical information that your new pension provider will need to make the transfer.

The transfer value is not a fixed amount – it can fluctuate depending on performance over a given time period so the value you receive today may be different in six months’ time. It may have gone up or down. For this reason, it is important that if you are considering a move over a long period of time before making a decision, make sure and request updated transfer value data every few months.

If you are in a defined Benefit Scheme you may have been given an Enhanced Transfer Value. This is an additional value provided by your pension scheme trustees to encourage you to move your pension to another product. This can happen because Defined Benefit pensions have become very costly to operate and the trustees of the arrangement need to manage the number of people within the scheme. Otherwise they may not have the funds to provide the benefits required to all members in the future. Consequently they are attempting to reduce the number of members in the Defined Benefit Scheme. 

If you left a company that operated a Defined Benefit scheme then you will still be eligible for benefits for that scheme based on your years of service. If you fall into this category you are known as a Deferred Member. Deferred members are generally offered an Enhanced Transfer Value to encourage them to move out of the scheme.

As a deferred member, you have the option of leaving your benefits within that Defined Benefit Scheme until retirement or transferring the fund value to your own individual personal pension policy. This policy is known as a Buy-Out-Bond (PRB).

You are entitled to work and still access your pension in retirement. Many people do take on part-time or intermittent roles during retirement years simply to keep themselves busy. They have a lot of skills and experience that can be put to good use. This will not affect your State or private pension payments. However, everyone receiving a taxable income must pay tax in the normal way, regardless of age. However, there are some exemptions for people who are over the age of 65. Currently there are exemption limits in place for people aged over 65. These limits allow you to earn income up to a certain level before you are taxed. For a single or widowed person, the limit is €18,000. Anything earned below this level will not be taxed. For a married couple or two people in a civil partnership the exemption limit is €36,000. If you have dependent children there are additional amounts added. It is currently €575 each for the first two children and €830 for any subsequent children. 

In addition to the personal tax credit that everyone paying tax under the PAYE system is entitled to, people aged 65 and over will also receive an Age Tax Credit. This is currently €245 for single or widowed people and €490 for a married couple or a couple in a civil partnership.

Pension planning is complicated and time consuming but is a very beneficial activity to engage with. You don’t have to do it alone and indeed it is strongly advised that you contact a pension provider for advice at every step of your pension planning. For most people, their pension is the largest investment they will ever make and it can pay dividends when managed properly.