How would you like a GUARANTEED growth rate in your pension ?
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Buy Out Bonds
SSAP’s (Small Self Administered Pension Schemes)
Company Group Schemes
Could you live on the state pension of €248.30 per week?
Thats why retirement planning is very important !
We have recently been quoted a fact from the life companies that up to 75% of people have stopped paying into their pensions….
There are many factors which cause this
- Bad Equity Performance
- High Management Charges
- Can’t afford to contribute
- Uncertainty in Markets
Also, you may be unaware that the funds are reducing in value due to a combination of the above facts AND increases in charges eg.: Pension Levy Etc Etc
It’s always a great time to plan for retirement regardless if you think its too late or too early,especially when as of Jan 2011 the state contributory pension in Ireland is ONLY €230.30 per week. We all heard this before and respond with a yawn. The quality of Life in retirement can be much improved by a list of advanced planning.lf
What you need to know about your Pension
First, a reminder about why you started your pension in the first place. Tax Relief:
Pensions are the only way for most of us to reduce the amount of tax we pay. For every €1000 you pay into your pension it actually only costs you €590 in your take home pay. Also, if your employer pays say €100 pm into your pension it does not trigger an income tax charge saving you between €20 and €47 in income tax when compared with receiving the equivalent payment as salary.
People often forget that pension funds grow tax free.
Bank Deposits: Pay DIRT tax on all growth of up to 37% depending on how often interest is credited.
Sale of Shares, Property or Bonds: Pay Capital Gains Tax at 33%
Income from Shares, Property, Bonds: Income tax + PRSI 20-47% plus further 2-6% in levies
Your pension fund may hold bank deposits, shares, property and pays none of the above taxes.
There are many ways of saving for your retirement but the tax savings described above mean that pensions are the most effective way of doing this.
What happens when I retire
Self Employed / Company Directors / Employees into ‘AVC’ Funds only
25% tax free – most people take this initially. With the remaining 75% you have 2 options:
- Use the fund to buy an annuity i.e. a guaranteed income for life. A fund of €200,000 would provide an income for life of approximately €10,000 per year at current rates
- Place the fund in an Approved Retirement Fund (ARF). Simply an account where your fund continues to grow tax free and from which you can take withdrawls as and when you need to. Income tax is paid on these withdrawls. To avail of this option you must have a guaranteed income of €12,700 or invest the first €63,500 of your fund in an AMRF from which you can draw the capital invested at age 75 .
- **** Contact us for further details***** 042 93 39337 or email@example.com.
The ARF option is increasingly popular for three main reasons. You have more control over when you take money from the fund. Annuity rates are currently low. On death the ARF fund passes to your next of kin while the annuity may cease on death, depending on the type of annuity. It is essential however to take advise from a professional when deciding whether annuity or ARF is right for you.
Employees / Company Directors (have above options also)
On retirement the amount you receive tax free depends on the number of years service you have and the age at which you retire. If you have 20 years service and retire at the scheme normal retirement age (often 60 or 65) you are entitled to 150% of your final salary tax free.
The remainder of your fund must be used to buy an annuity.
The pension market has never been more competitive and this is an ideal opportunity to shop around for the lowest charges available. Older pensions in particular often have high and complicated charges. You should speak to a pensions professional who can analyze your pension to see if you could reduce charges by switching to a different provider.
To give a broad idea of charges the Government Approved PRSA has a charging structure of 5% premium charge and 1% pa fund charge. Some pensions currently available have lower charges that this.
Example of how pension charges can work:
You invest €100 into a pension each month
Allocation rate: this could be say 97% which equates to a €3 charge.
Bid Offer Spread: essentially another entry charge. A 5% bid offer spread on a premium allocated at 97% would increase the entry charge to €7.85 (97% x 95% = 92.15% or a 7.85% entry charge)
Policy Fee: a monetary amount e.g. €3.50 per month
So on the monthly premium of €100 there are charges of €11.35 in this example
Annual Management charge 1.65% pa. This is on the total fund value so on a fund of €10,000 would be €165 over the year.
Not all pensions are the same. It is not difficult to see how a pension with high charges can take some time just to ‘break even’. Modern pensions however are available with much lower charges so speak to your adviser today to get a better deal.
I have been made redundant – what are my options with my employers pension scheme.
On leaving a job for whatever reason you should request your Leaving Service Options from your employer or pension trustee. The options are usually as follows:
- Leave the pension in the employers scheme until retirement age – the fund will continue to grow in line with the investment performance less charges.
- Transfer to your new employers scheme – if you are moving jobs
- Transfer fund to a Buy Out Bond – this transfers the pension into your own name, you choose the pension provider and investment risk. Options on retirement are the same as on the scheme the transfer is coming from. So you should take advice on whether investment performance and charges would be better in a Buy Out Bond
Transfer to a PRSA – only available in certain circumstances. This will give you the 25% tax free lump sum and ARF option at retirement so again you should take advice on whether or not this works better for you.
All of the above qualify for tax relief on personal contributions at the following rates.:
|Age attained during tax year||
(% of Salary/Net Relevant Earnings)
|30 – 39||
|40 – 49||
|50 – 54||
|55 – 59||
|60 and over||
* Risk profiling is used to determine if this fund strategy would suit your particular needs.
|Warning: The value of your investment may go down as well as up.|
|Warning: Past performance is not a reliable guide to future performance.|
|Warning: This product may be affected by changes in currency exchange rates.|
|Warning: If you invest in this product you may lose some or all of your money.|