Pension Plan – FAQ’s
Find the answers to Private Pension Plans most frequently asked questions. Learn about everything form tax breaks to plan types and what your options are if moving jobs, retiring early or come normal retirement age. As pension planning experts we are here to answer all your questions and do all the heavy lefting in finding your best value solution!
- The average person retiring tomorrow aged 65 years has a life expectancy of between 20 – 23 years, that’s a significant amount of time to enjoy in retirement.
- It takes a long time to save for retirement and the earlier a person starts the better.
- Taking stock of your existing pension can reduce investment charges and allow greater control over your benefits come retirement.
Pension Plan – Frequently Asked Questions
How much is the State Pension?
The current State Social Welfare Pension is only: €248.30 per week. The contributory pension starts at age 66 and the non-contributory not until age 67. Is this sufficient to meet your financial needs when you retire?
What are the tax advantages of private pensions?
A pension plan provides full tax relief on your contributions, as well as tax-free fund growth and a tax-free lump payment option come retirement. This means;
1. If you’re on the higher tax bracket, 100% of your personal contributions receive 40% tax relief. Whereas employer-funded executive pensions effectively receive 52% PAYE relief, plus corporation tax relief @12.5%!
2. There is no DIRT or capital gains tax on investment growth.
3. After taking 25% tax-free on drawdown, despite the 40% to 52% tax-relief going in you can reinvest the balance and only pay 20% tax on withdrawals coming out.
Why should I take out a private pension?
If you have not got a pension in place with adequate contributions being invested to support your income in retirement (and don’t have other significant income or saleable assets come retirement), then you should start a pension plan. How else will you have a sufficient income to enjoy a good retirement?
What are the different types of private pension plans?
PRSA – flexible plan for the self-employed & employees not in an employer-sponsored pension scheme.
Personal Pension – a low-cost pension arrangement for the self-employed and those without an employer scheme.
Executive Pension – set up by employers for executives or key employees of the company. The plan is set up under a trust, so typically the plan provider will provide a free trustee service to remove the onus from the employer.
Both employees and employers can make contributions, although in the case of proprietary directors (business owners including contractors), its more tax advantageous for the company to fully fund the plan.
What is the difference between a Personal Pension and a PRSA?
With regards to starting a private pension (where you are not a company owner or director), if your current employer does not provide one, your options are a Personal Pension or a PRSA. Personal circumstances and future employment plans will influence which best suits each individual case.
A Personal Pension Plan can offer better value in terms of charges than a PRSA, but if you later join a new employer pension scheme, you would need to first transfer it into a PRSA before then transferring into your new employer scheme if you wished to do so.
A PRSA is fully portable if you change your job and like with a Personal Pension you can stop and restart making contributions at any time. However, although not obliged to do so, your employer may contribute to your PRSA, whereas an employer cannot contribute to a Personal Pension Plan.
There are two types of PRSA’s – Standard and Non-standard.
Standard PRSA: A standard PRSA is one where you cannot be charged more than 5% on the contributions you pay and 1% a year on the funds under management; the choice of investment funds are more limited than non-standard PRSA’s.
Non-standard PRSA: A non-standard PRSA is one where the fund management charge may exceed 1% PA in return for broader investment fund choice.
AVC PRSA
If you are a member of your company’s pension scheme and would like to make additional retirement savings, you have the option of setting up an AVC PRSA into which additional voluntary contributions (AVC) can be paid and/or transfers from existing AVC pension arrangements can be made.
I already have a pension plan, why should I review it?
One Quote’s qualified independent pension advisors have many years’ experience in the pensions industry and provide you with expert advice, whether starting out, changing jobs, reinvesting, or seeking to review your existing pension.
If you’re self-employed, or a company director you may be paying too high an annual management charge, or receiving a reduced investment allocation to support your broker’s commission. It is also possible, that your investment funds are not properly aligned to your approach to risk. We can provide a free audit to make sure you’re secure in knowing that you’re getting the best value and appropriate investment risk.
Our pension clients also benefit from daily on-line access, half-yearly benefit statements, and annual review meetings as part of our standard review service.
I am leaving my job, what should I do about my pension?
If you were in a final salary, or defined benefit pension scheme then it is most likely best to leave your fund value there for future access. If you were in a defined contribution scheme, then you should consider moving the fund to your new employer’s pension scheme, or to your own Personal Retirement Bond, where you can govern the investment choices.
I am retiring soon, what are my pension options?
What you can do with the proceeds of your pension plan depends on which employment category you fall into and the type of pension plans you currently hold. Depending on your circumstances there are different options for you to consider at retirement. You have the option to take a tax-free lump sum and may be able to use the balance to avail of:
- A pension income for life (an Annuity)
- An Approved Retirement Fund (ARF)
- A taxable lump sum
Should you wish to reinvest part or all of your accumulated fund in an ARF contact us for more information on: 01 8450049.
How do I ensure best advice and value for money?
We compare charges and investment performance of all leading insured and self-directed pension providers. We ensure that the recommended pension plan option, matches your appetite for investment risk and that any charges are fully transparent and kept to a minimum. We also offer you full on-line access to your pension plan from inception, with regular investment performance reviews.
Can I cash in my pension early, if needs must?
Since a change in legislation on 22nd June 2016, you can now retire from age 50 and take 25% of your fund tax-free. This is the case for all pension plans, including group employer schemes, but excludes individual PRSA’a and Personal Pensions where you need to be aged 60.
If you have to stop working due to serious ill-health, you can take your pension benefits earlier than these stated ages!
Once you have taken your 25% tax-free, you can choose to reinvest the balance in an ARF (investing in funds for tax-free growth as before) and make regular and ad hoc withdrawals to provide an income.