Why should I plan for my retirement?
Your retirement may seem like a long way off, but it is never too early to start
planning. Smart planning for your retirement will ensure that when you do retire
you can maintain the standard of living you have become used to.
While you may be entitled to a State Pension at retirement, the age at which you
can access this pension has been increased: it will not be paid until age 68 for
people who were born on or after the 1st of January 1961.
And even if you do get the full State Pension, at €230 per week currently, it’s
designed to cover the basic necessities of life only and will be a sharp drop from
your annual salary. Bearing this in mind you will need a plan to supplement the
State Pension payment. In particular, if you are self-employed or working for an
employer who does not include you in a pension scheme for retirement benefits,
it’s up to you to make additional financial provision for your retirement.
There are a number of options available to you, one of the most straightforward is
to set up a Personal Pension Plan.
A personal pension plan is a long-term investment aimed at helping you set aside
money for your retirement. The ultimate value of your pension plan will depend
on the contributions you have made over the years and the investment return the
funds have achieved in your personal pension plan.
Personal pension plans are designed for people who don’t have a pension scheme
through work and who want to set aside money themselves. In particular, a
personal pension plan would suit people who are either self-employed or have no
pension through their employment.
How much should I invest in my Personal Pension Plan?
Before you decide how much you are going to invest in your Personal Pension Plan
there are a number of things you need to think about: what age you’d like to retire
at, your current age, your existing income and how much you can afford to set
aside each month as a pension contribution.
General consensus suggests you should aim to retire on two thirds of your current
income (this figure will include the State Pension). A Personal Pension Plan gives
you the flexibility to make contributions either monthly, quarterly, every six months
or every year. You can also boost your Personal Pension Plan with a lump sum
payment at any stage.
You are able to decrease or increase your contributions at any stage, which is useful
if you begin to earn more money, or on the other hand, if you are having financial
As a Financial Broker we will talk to you about your expectations for retirement and
your personal circumstances. In understanding what you hope to achieve they can
offer you helpful advice in deciding on your contribution amount.
What are the tax advantages of a Personal Pension Plan?
A Personal Pension Plan is a tax-efficient way for you to save for your retirement.
Your monthly contribution to your Personal Pension Plan qualifies for income tax
relief at your marginal tax rate: for example, if you pay tax at the 41% rate, for each
€1 you contribute to your Personal Pension Plan you can claim 41 cent back in tax
relief. To give you an idea how much this will save you annually: if you invest €1,000
in your Personal Pension Plan per year, it will actually only cost you €590, after
income tax relief.
There are limits to the income tax relief you can get from the Government. The
maximum contributions which you can get income tax relief on in a year vary by
your age in that year:
Age in year Maximum tax deductible
contributions as a % of your
earnings (max €115,000 earnings)
29 or younger 15%
30 to 39 20%
40 to 49 25%
50 to 54 30%
55 to 59 35%
60 or more 40%
In addition, the growth achieved by your PPP is not subject to tax. This means that
you gain from any investment growth and income your PPP earns.
Remember: Make sure you understand the tax benefits of a Personal Pension
Plan and that you apply to the Revenue Commissioners for these benefits.
How do I decide where to invest my Personal Pension Plan?
You may be relying on your Personal Pension Plan to provide an important source
of income in retirement, so it’s vital that you invest it wisely. There are many options
available to you, from low and high risk funds investing in particular types of assets
to managed or mixed funds investing in a spread of assets and self-directed funds
where you choose the funds or assets in which you invest.
The Personal Pension Plan you decide to invest in should offer you a diversified
range of investment options that can meet your changing circumstances over time.
Any choice you make should be based on the level of investment risk you are
comfortable with and should take into account your financial circumstances and
goals. It is important to understand that the value of your Personal Pension Plan can
fall as well as rise, depending on which funds or assets you invest in.
Remember: If you make no decision on how to invest your Personal Pension Plan
it may be automatically invested in a default fund, which may or may not be suitable
for your circumstances.
|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.|