A study in October 2020 showed that almost 50% of Irish people are planning to rely on the State pension in retirement. Therefore, retirement planning has become more common than ever.
Do you know how much the State pension is? … It is €248 per week.
That is a gap of approximately €500 per week when compared to the current average wage in Ireland.
Approaching retirement should be one of the most enjoyable periods of your life.
However, for many, it can be quite stressful and overwhelming. It can be difficult to weigh up your options and know exactly what route to take.
This is particularly the case when it comes to finances. We help clients achieve clarity surrounding their finances and help to implement a plan that suits their needs.
We work alongside advisors who take a non-jargon approach to financial planning meaning you understand all options available to you.
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Are you looking to have a concrete financial plan in place for retirement in the coming years?
Planning for retirement takes time and unfortunately is not something that can be done last minute.
If you would like the lifestyle you deserve in retirement it is important you plan.
However, the financial landscape can be difficult to navigate. There are a lot of acronyms and information out there.
PRB, ARF, DB, DC schemes. It is hard to know what they all mean, and which apply to your situation.
This is where having an experienced advisor is of huge benefit. However, having an experienced advisor who will take a non-jargon approach is even more important.
Somebody who can chat with you and help you assess all your available options.
What age can I access my pension?
Most pension arrangements can be accessed early under certain circumstances. However, each arrangement is different and dependant on scheme rules.
- Occupational Pension Scheme – 50 + with employers and trustee’s
- Personal Pension Arrangement – 60+
- Personal Retirement Savings Account (PRSA) – 50+
It is worth consulting with an expert and assessing your options. Perhaps you are part of a large corporation that is running a scheme.
On the other hand, you may have a personal pension. Either way, it is always a good idea to discuss your situation with a Qualified Financial Advisor.
What are the pension contribution thresholds?
Below is a breakdown of the pension thresholds in Ireland. There is a direct correlation between your age and the amount of relief you will receive on contributions.
|Age||Percentage of earnings|
|60 and over||40%|
The contributions made are eligible for tax relief up to a maximum of €115,000
How to plan for retirement
Planning for retirement should not be a guessing game. If you would like to live the lifestyle you deserve upon retirement, having an industry expert by your side is important.
Someone who can provide you with information and help you assess your options. Your attitude to risk must be considered when planning your future.
Our team of advisors take a holistic approach to financial planning.
Pensions can sometimes be confusing, but they do not have to be. Book your consultation today to begin taking control of your retirement.
Early Retirement from an Occupational Scheme
Occupational Pension schemes consist of Defined Benefit and Defined Contribution schemes.
Live is fast-moving and we are changing employment more regularly than ever.
If you were part of an occupational scheme but have since left that employment you are a deferred member.
There are currently upwards of 400,000 deferred members in Ireland. Being a deferred member of an occupational pension scheme will give you various options.
Although these options are scheme dependant, you may be eligible to access a 25% tax-free lump.
However, it is always worth consulting with a Qualified Financial Advisor before taking any action.
Every individual situation is different and should be treated as such. Remaining in the occupational scheme may be a better fit for your financial situation.
Retirement Planning & Early Retirement from:-
If you are self-employed, you have options regarding a pension. Below we have broken down the three options available to you: –
PRSA- Personal Retirement Savings Account
A PRSA is available for any individual to take out regardless of their job or employment status. It provides benefits at retirement based on the amount of contributions you have paid.
You may access your PRSA from age 60. However, if you are retiring from employment, you may access your benefits from age 50.
You could also be entitled to a 25% tax-free lump sum up to €200,000.
Access will be dependant on scheme rules so it may be worth contacting your scheme administrator.
However, as with any retirement planning decision, it is always worth consulting with a qualified professional.
A personal pension plan is a particular type that is organised by self-employed people or those who do not have an occupational pension scheme. These personal pensions are managed by a life assurance or investment company.
If you have a personal pension arrangement and plan to cease employment, you may access your benefits from age 60.
SSAS – Small Self-Administered Scheme
A small, self-administered scheme is a company pension plan. It differs from traditional pension plans which are generally provided by insurance companies. However, this plan is self-administered which allows you control over your contributions and investment decisions.
You may access your SSAS from age 50. However, it is advised to seek professional advice before making any decisions regarding your pension. Early access may or may not be the correct decision depending on your situation.
Transferring or moving your pension?
Have you changed or left employment?
Perhaps you are a deferred member of an occupational pension scheme form a previous employment?
Either way, it would be a good idea to assess your options. Depending on the scheme, you may have various options available to you.
For some it may be advisable to leave your pension where it is and keep them separate. For others it could be better to transfer.
There is no one-size-fits all with pension planning. It is always advisable that you consult with an expert.
For example, if you are a deferred member of an occupational scheme and over 50 years of age, you could access a 25% tax-free lump sum.
Are you retiring soon?
As you near retirement, you will face some important decisions regarding your pension.
Particularly in 2021 as there has never been more options available. It is a time in your life where you want to fully understand any decision you make.
You will probably hear a lot of terms thrown around surrounding retirement.
Transfer to a PRB?
Take your tax-free lump sum and invest the remainder into an AMRF & ARF?
But unless you are a pensions expert it can be difficult to understand what these acronyms mean.
It is your retirement and your pension. Be sure whatever advisor you decide to go with discusses all potential options.
A full holistic approach as everyone’s situation and attitude to risk is different.
If you would like more information on pension transfers or AMRF and ARFs feel free to click here.
What is an AMRF?
An AMRF is like an ARF but has some key differences. It is a separate fund for those who: –
- Do not have a guaranteed annual income of €12,700 &
- Have not invested in an AMRF or purchased an annuity.
Unless you have satisfied both the above conditions after taking your retirement lump sum, you are not eligible to invest your funds into an ARF.
This can be quite a lot to get your head around.
Think of an AMRF as Revenue’s way of ensuring you have a ring-fenced amount for your retirement.
They do this by enforcing certain rules surrounding how much you can with from your AMRF annually. The max you can withdraw per year is 4%.
You cannot withdraw any larger than this until age 75 or you satisfy the €12,700 guaranteed income rule.
However, it is worth noting that you are not required to take a minimum withdrawal from your AMRF each year, even from age 61.
Options when accessing your pension
What is an ARF?
An ARF in an investment fund that allows you to invest your pension after you have taken your retirement lump sum.
ARFs are appealing as they give you control over how your fund is invested. It also gives you the options of a wide array of different fund options.
However, it is advisable to consult an expert before deciding to invest in your ARF. We can do a lot of research, but a second opinion is always a good idea.
There are rules surrounding withdrawals from your ARF. Most of these are regarding the minimum amount you must withdraw each year.
These minimum withdrawals are referred to as imputed distribution. We will break this term down in further details in a couple of minutes.
However, certain conditions must be met before you can invest your ARF. These conditions are:
You must be in receipt of a guaranteed income for life of at least €12,700.
(It is worth noting that rent is not seen as guaranteed income)
You must have invested a minimum of €63,500 of your retirement fund into an AMRF or purchased an annuity.
Taxation on ARFs
Taxes, we know, no escaping them! However, hopefully your fund has been invested wisely and is performing well.
When an owner of an ARF (you) reaches 61 years of age, what’s called an imputed distribution kicks in. The imputed distribution is calculated as a percentage (4%) of the market value of your ARF fund on 31st December each year.
The imputed distribution then rises to 5% from age 71. Essentially, this means you have to withdraw a minimum of 4% or 5% depending on your age.
It is important to note that where the fund value is more than €2 million, withdrawals will be 6% from age 61 as per pension legislation.
Advantages of ARFs
Some of the advantage of having an ARF are the following: –
- Flexibility, you can have as much involvement and control with regard to fund choices as you would like.
- You can withdraw as much as you would like from the remaining amount.
- Growth within your ARF is tax-free (withdrawals are taxable).
- Multiple investment options.
- On death, the full value of your fund will pass to your spouse. If they die, ARF crystalizes and passes to your children (30% tax payment).
Disadvantages of an ARF
As you have discovered by now, we are all about transparency around here, so lets take a look at some of the potential disadvantages.
- Your fund is not guaranteed to keep its value and may underperform.
- Similar to the above, your fund may eventually run dry.
- Some ARFs may have high ongoing charges (this is where a good advisor comes in handy).
- Imputed distribution of 4% or 5% along with income tax and USC.
Pension Calculation – Breakdown
Below is a breakdown of pension contributions regarding having a specified amount at retirement. You will also see a breakdown of tax relief on contributions and how it affects your net contributions.
Is it important any guesswork is removed when planning for your retirement.
Book your consultation with one of our team to begin assessing your retirement options.
|Age Your Start Contributions||40||45||50||55|
|Yearly as % of salary||22% p/a||28.2% p/a||38.2% p/a||56.9% p/a|
|Yearly contributions||€8,800 p/a||€11,280 p/a||€15,280 p/a||€22,760 p/a|
|Gross per month||€733||€940||€1,273||€1,897|
|Less tax reliefs||(€255)||(€245)||(€278)||(€312)|
|Net contributions per month||€508||€695||€995||€1,585|
All figures are sourced from the Pensions Authority website. (www.pensionsauthority.ie)
What is a Transfer Value?
If you were part of a Defined Benefit Scheme, you may have received correspondence regarding a Transfer Value.
Defined Benefit Scheme numbers have been decreasing regularly in the past 20 years. In 2015 & 2016 alone, there were 55 schemes in ‘wind-up’. (The Pensions Authority, Defined Benefit Schemes, Review of 2016 Statistics)
Many schemes are either closed to new entrants, wound up or in the process of winding up. Therefore, many trustees and employers are offering transfer values to deferred members.
A deferred member is a previous member of a Defined Benefit Scheme who has not yet reached retirement. 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 policy. This policy is known as a Buy-Out-Bond (PRB).
Should I accept a Transfer Value?
It is worth noting, that no decision should be made without the assistance of a Qualified Financial Advisor.
Every individual situation is unique and will have a different set of needs. Defined Benefit Schemes are becoming increasingly expensive for employers and trustees to administrate.
It is also worth noting that the amount within your Defined Benefit Scheme is a promise, not a guarantee.
You may want to transfer to a Buy-Out-Bond or to a Defined Contribution Scheme. As above, no decision should be taken lightly, and all possible options should be weighed up.
In some cases, staying within the Defined Benefit Scheme may be the correct decision.
What is an Enhanced Transfer Value?
As we touched on earlier, DB Schemes have become quite costly to run. Therefore, employers andtrustees in many cases have offered Enhanced Transfer Values.
These act as an incentive to transfer out of the scheme to a different arrangement. These ‘Enhanced Transfer Values’ may be available to:
- Current employees where schemes have ceased to accrue future service benefits, and
- Deferred members (former employees yet to be in receipt of their benefits)
There may also be an option for current employees to transfer to their employers’ Defined Contribution Scheme. Deferred Members may have the option to transfer to a personal arrangement such as a Personal Retirement Bond (PRB).
Tax considerations of early retirement
Before making any decisions surrounding your retirement it is advised to speak to an expert. Certain decisions may have ramifications and could potentially affect your tax threshold.
We work alongside a team of fully Qualified Financial Advisors who have over 100 years of combined experience.
If you would like to assess your options book your complimentary consultation here
What tax will I be subject to in retirement?
Retirement income unfortunately does not escape income tax implications and will be subject to tax rules.
Annuities, withdrawals from ARFs, dividend income, and rental income are all subject to income tax at your marginal rate, PRSI & USC.
However, it is worth noting that there are some reliefs as we get older. If you are over 65 years of age, there are some exemptions and extra credits.
|Single or widowed or surviving civil partner||€18,000|
|Married or in a civil partnership||€36,000|
|First two children||€575 each|
|Subsequent children||€830 each|
If you think your income for the year will be less than the above thresholds, you should contact Revenue as they will determine your tax credits. If you have income slightly above these thresholds, you may be entitled to ‘marginal relief’. This would mean you pay a tax rate of 40% on the income amount that exceeds your relevant threshold.
How are pensions taxed?
You are entitled to receive income tax-relief while making contributions to your pension. The growth of your pension fund will also be tax-free.
However, when you are accessing your pension you will be liable to pay tax. Although you are entitled to access the initial €200,00 tax-free.
Navigating the pension landscape and ensuring you are as tax efficient as possible can be difficult. These are decisions that should not be taken lightly. If you would like to book a complimentary consultation with a Qualified Financial Advisor, please click here.