How are you going to achieve financial independence in retirement?

A pension offers you the means to save regularly and build a sum of money in a structured way. Pensions are an extremely tax efficient way to save for the longer term.

You cannot generally access your money until you are age 60. However, if you are prepared to invest what you can afford to lock away, then you can benefit from significant incentives.

Nelson Life are professional experts and are here to discuss pensions. Here are some of the reasons we believe pensions still make sense:

1. Will the State Pension be enough? When you retire will the State provide the same level of pension income, medical card supports and other benefits?

  • Full rate for a single person is currently €238.30 per week - or, €451.80 per week with an adult dependant allowance.

  • Currently, there are 5.3 people working in Ireland for every pensioner, this ratio is forecast to change to 2.1 by 2050 (Source: Dept Social Protection.)

  • Less people working equals potential less income for the state.

2. State Pension age is increasing. You will now have to wait longer for the State Pension!Your employment contract may be set to age 65, however, legislation is now in place that has increased when the State Pension is payable.

  • Born during 1961 or later - you will have to wait until age 68!

  • Born between 1955 to 1960 - you will have to wait until age 67!

  • Born between 1948 to 1954 - you will have to wait until age 66!

3. Life expectancy expected to continue increasing. How long will your pension fund last?

  • Life expectancy is currently 78 for male and 82 for females (Source : CSO 2013)

  • You may need 30 years of income in retirement !

4. Saving for a pension is very tax efficient.

  • You will qualify for tax relief on your pension contributions, relief is available up to 40.00% of the contribution, or 20.00% for a lower rate tax payer.

  • Monies grow tax free

  • Tax free lump sum. You can convert some of your pension fund into a tax free lump sum. The maximum tax free amount is €200,000.

5. Your pre-retirement pension fund can act as a form of life assurance for your dependants.

The tax treatment of pension funds on death can result in a tax efficient way of inheritance planning. Currently, for children the Capital Acquisitions Tax threshold is €310,000.00 including any other gifts received from parents since 1991.

  • Personal pensions and PRSAs are payable to your estate on death. The fund value at the recorded date of death is payable.

  • Pension schemes will pay-out to a lump sum in the event of your death to persons that you nominate (or your estate). Company pensions are limited to 4 x salary (including all retained benefits) plus a refund of their own personal AVCs and employee contributions.

  • Pensions schemes may pay out a survivors income to dependants on your death. If a spouses, dependants or children’s pension is payable this will be taxed as income.

  • NB: Where the member has left service, his/her benefits are defined as a "preserved benefit". In this instance the full value of personal retirement bond is paid to their estate on death. A employee will have a preserved benefit if they have at least 2 years service in the scheme and left employment after June 2002. Different rules may apply before this date.

6.  The Approved Retirement Fund (ARF) has now been extended to all members of defined contribution schemes (see earlier Nelson Life blog posts).

  • You need to consider your options carefully when you decide which option to take at retirement.

  • You need to consider your need for guaranteed income, your other sources of income. Your existing scheme may have a protected annuity (income for your lifetime, that is not dependent on investment returns).

  • If you need an income for the whole of your retirement - your fund may have to last 30 years or more!

  • You will need to control the risk that your fund may fall in value and the income you need fall fall or cease!

7. Your post -retirement pension fund an act as a form of life assurance for your dependants.

Approved Retirement Funds, Approved Minimum Retirement Funds, vested PRSAs are ALL treated the same on death.

The tax treatment (Income Tax & Capital Acquisitions Tax - CAT) is dependent upon who inherits the fund and tax law at that time - spouse, child under 21, child over 21 or other relationship. Approved Retirement Funds, Approved Minimum Retirement Funds and vested PRSAs can transfer to your surviving spouse or registered civil partner. In this instance no Income Tax due on the transfer to an ARF in the spouse's name, subsequent withdrawals are taxed as income. There is no Capital Acquisitions Tax payable

NB: If you are approaching age 75 then we recommend that you seek financial advice in relation to any non matured (vested personal pension contracts). **

8. Investment flexibility.

Pension funds, both pre retirement and post retirement, allow for a broad range of investment options. For example, see Nelson life blog on investment options and property investment.

**The Finance Bill 2016 has made fundamental changes to the treatment of PRSAs (Personal Retirement Savings Accounts) and RACs (Retirement Annuity Contracts/Personal Pensions) where the client passes, or has already passed, their 75th birthday. There are severe consequences for customers if action is not taken before your 75th birthday,  the fund will become taxable. For customers under 75, the message is to mature their PRSA or RAC before their 75th birthday and transfer to an ARF, Annuity or take as taxable cash (and an AMRF if required before 75).

Want to know more? We are available to discuss your options, and we look forward to hearing from you.

Our job is to help you choose a product and structure that will help you meet your goals.

telephone | 091441188 and/or email | office@nelsonlife.ie

RETIREMENT & PENSIONS |  INVESTMENTS | FINANCIAL PLANNING | LIFE INSURANCE

Nelson Life Limited trading as Nelson Life is regulated by the Central Bank of Ireland.

WARNING: Past performance is not a reliable guide to future performance. WARNING: The value of your investment may go down as well as up. WARNING: You may lose some or all of the money you invest. WARNING: These funds may be affected by changes in currency exchange rates. WARNING: If you invest into this product you will have access until you retire (Pension Products). WARNING: The above content does not constitute investment advice, as it does not take into account the investment objectives, knowledge and experience of financial situation of any particular person. Prospective investors are advised to make their own assessment of the information contained herein and to obtain professional advice suitable to their own individual circumstances. WARNING: The information contained in this document is based on our understanding of current tax legislation and the current Revenue Commissioners interpretation thereof and is subject to change including retrospectively without notice. This is intended as a general guide only and is not a substitute for professional tax, legal and investment advice. 

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