How to Start a Pension?
Step 1: Understanding how pensions work
Step 2: Meeting with a financial advisor
Step 3: Assessing the different pension options available
Step 4: Fact-finding process
Step 5: Risk assessment
Step 6: Select an investment strategy that is suitable to your needs
It is also important that you take time to review your pension annually alongside your financial advisor.
What types of pensions can you start?
Personal Retirement Savings Account (PRSA)
This is a personally owned pension that can be taken out regardless of employment status.
Company Pension Schemes
We help small-medium size businesses set up or review their pension schemes.
Benefits of Starting a Pension
Tax Relief on Contributions
As you contribute to a pension, the net cost or ‘real’ cost is not as high as you think. The government provides tax relief at your highest rate to encourage us to save.
If you would like to see real life examples of how tax relief works, feel free to check out our blog.
Tax Free Growth
Another advantage is that once in a pension, your investment will grow tax-free. It will accumulate over time free of income tax, capital gains tax, or DIRT.
Tax-Free Lump Sum
At retirement, you will often be eligible to take a percentage of your fund tax-free. The amount you take will be dependent on the type of arrangement you have and if you have taken lump sums from other pensions.
Most people will be eligible to take 25% tax-free as a lump sum. However, there is a limit of €200,000 that can be taken tax-free
Starting a pension at 30, 40 & 50
Irish Pension Statistics
Why Choose Pension Support Line?
- A non-jargon approach.
- Experienced Advisors
- Proven track record
- Commitment to providing a quality service
How do I pay my pension contributions?
Your pension contributions are calculated on your earnings. You will receive income tax relief against your earnings from employment for your pension contributions.
Depending on your age, you will fall into a specific bracket that has a threshold limit that is directly correlated to age. The maximum earnings that can be considered for tax relief are €115,000 per year.
Below is a breakdown of the thresholds and how they change depending on age.
|60 or over||40%|
What happens if I die before I retire?
Hopefully, by the time you reach retirement, your pension will likely be one of your largest assets. Therefore, it is only natural to wonder what will happen to it should you pass.
With the average pension in Ireland hovering at close to €100,000, how it is inherited will be important.
Rules around what happens to your pension if you die will depend on the type of scheme and its rules. However, unless you take the first step and start a pension, none of the above will be relevant.
Pension Tax Relief Benefits
If you are on the tax rate of 20% and invest €100 per month you will receive tax relief of 20% by Revenue.
If you are on the higher tax rate 40% and invest €100 per month you will receive tax relief of 40% by Revenue.
Pension Calculation Example
Based on the assumptions as per ‘pension authority calculator’, you are not expected to meet your target pension of €17,500 p.a. in retirement. You will need to your total annual contributions to 9.8% of your Salary so you can meet your target pension.
There is always the option to reduce your target pension in retirement or retiring at a later age. To put a long-term plan in place it is always a good idea to seek advice from a qualified advisor, who can explain the process, targets etc in simple English.
Always bare in mind, the longer you leave it to start a pension, the more you will pay.
An example of results as per the pension calculator. All results are received from the Pension Authority.
Please find the source below and assess your options or goals.
Your accumulated retirement fund is converted to an annual pension using long-term average conversion rate as per the ‘pension authority calculator’. In addition, the actual conversion rate at retirement may change or differ from the conversion rate above!
All figures are of December 31st 2020.
|Your current annual gross salary||€35,000|
|Your intended retirement age:||68|
|Target Pension as a % of pre-retirement salary||€17,500|
|How your Annual Target Pension is Made Up||Your Personal Pension From 68|
|Projected Pension from your Current Pension Arrangement||
€ 0 p.a.
|Current State Pension||€12,912 p.a.|
|Projected Retirement Pension||€12,912 p.a.|
|Projected Pension Shortfall to be funded||€4,588 p.a.|
Total Target Pension in retirement
|The Age You Start Your Contributions||Age 35||Age 40|
|Yearly as % of Salary||9.8% p.a.||12% p.a.|
|Yearly Contributions||€3,430 p.a.||€4,200 p.a.|
|Gross per Month||€286||€350|
|Less Tax Reliefs||(€57)||(€70)|
|Net Contributions Per Month||€229||€280|
Source: Pensions Authority
|The Age You Start Your Contributions||Age 45||Age 50|
|Yearly as % of Salary||15.2% p.a..||20.3% p.a.|
|Yearly Contributions||€5,320 p.a.||€7,105 p.a.|
|Gross per Month||€443||€592|
|Less Tax Reliefs||(€89)||(€118)|
|Net Contributions Per Month||€355||€474|
Source: Pensions Authority
How long does it take to start a pension?
Less time than ever before. As a result of Covid-19 and progression in technology, you can do everything over Zoom or Microsoft Teams.
Depending on how quickly you meet and complete paperwork, you could set your pension up within a week. Although it is better to allow a timeline of 2-4 weeks. Plus, it is not something to be rushed.
A consultation with a Qualified Financial Advisor is the first step. Ensure a holistic view is taken of your situation and decide the best course of action.
The pension world is full of acronyms and jargon so ensure you speak to someone who can break everything down.
When it comes to pensions there is no one-size-fits-all approach. Each of us has a different set of needs and circumstances.
Planning to rely on the State Pension?
The current state pension in Ireland is €248 per week which is just over €35 per day. That is without accounting for the fact it is a system with €359 billion of liabilities.
Therefore, it may not be a viable long-term option. Should you choose to rely solely on the State Pension, you will likely huge hit in income levels.
|Average Wage||€44,148 (CSO – 2021)|