pensionshead

Approved Retirement Funds

Are you near or at retirement and searching for pension fund advice ?

Your pension fund is probably now one of your largest assets.

Depending upon your employment status and scheme rules (if you are an employee) you will have a broad range of options:

Firstly, you will be given the option to take a portion of your pension fund tax free.

With the remainder of your pension fund you will have the option to either

Use the remaining pension fund/portion of it to buy an annuity/pension for the remainder of your lifetime

You will have an “open market option” and this allows you shop the market for the best rate possible. We recommend that you have all the options explained to you by an independent pension advisor– especially if you are married – as there are options to continue payment to your dependents after your lifetime.

Use the remaining pension fund or portion of it to invest into an Approved Retirement Fund (ARF) / Approved
Minimum Retirement Fund (AMRF)

Use the remaining pension fund to take as a taxable cash lump sum subject to PAYE and other levies.

If the remaining fund is less than €20,000 then you can avail of “trivial pension” options – draw down monies subject to tax.

You only have one opportunity to get this decision right and as pension retirement specialists we can ensure that you have all the options clearly explained to you – so you can make an informed decision.

 

What is an Approved Retirement Fund – ARF?

An Approved Retirement Fund is a post retirement pension fund that you can control and invest for the purpose of providing income for your retirement.

From aged 61 you must take 5% of the balance of the fund annually in the form of an income.

The funds can be invested into a range of deposits, funds, commercial property, shares, protected investments, shares, bonds and alternatives – your strategy is dependent upon your appetite for risk, other savings and required income.

On death the ARF can be passed to your beneficiaries (subject to tax) – unlike an annuity that may cease in payments on your death.

To be eligible to invest in to an ARF you must have these options available at the point of retirement i.e. self-employed, company director, member of pension scheme or employee who has paid AVCs :-

In receipt of pension income payable of at least €12,700 a year (this can include State Pension Income)

You have already invested €63,500 of your retirement funds into an Approved Minimum Retirement Fund

Or, purchased an annuity for the equivalent value of an annuity.

Advantages of an ARF

You have a fund that you can control and potentially pass on to your beneficiaries – subject to CAT / PAYE.

You decide where to investment monies based upon propensity to accept risk.

Investment growth on your ARF is tax free – there is no pension levy payable.

You decide when you wish to withdraw income – post 65 and married if your total income is less than €36,000 you will pay no tax – however, all withdrawals potentially subject to PAYE. There is no 5% income requirement pre 61.

You decide when and at what rate you draw on your ARF in retirement (subject to a minimum 5% per year withdrawal from the age of 61).

You always have the option to buy an annuity in the future – however, annuity rates may fall and you may not have as much capital to buy an annuity. Alternatively, by waiting you may secure a higher rate – based upon all things being equal this may be the case as annuity rates increase as you get older.

Disadvantages of an ARF

The biggest risk to your retirement fund is the fact that you may invest into assets that may fall in value – your investment may fall as well as rise. This is a critical issue for those looking to preserve their retirement fund when 5% per annum is being taken in annual income each year.

Your retirement fund decreasing to ZERO in value is a potential risk – especially as once you get to age 65 you have a 50/50 chance of living for another 20 years – if this happens your income will cease.

INVESTMENT RISK WARNING :
An Approved Retirement fund runs the risk of its value reducing to ZERO if its annual growth does not exceed the annual 5% per annum draw down. In this instance you need to ensure there are adequate savings or other income producing assets to maintain wealth. If this is not the case then we strongly advocate using a combination of annuity and ARF to secure income.

An ARF allows to invest into a very broad range of investment assets and the value of your ARF could fall significantly in value. As your income is based upon the balance available in your ARF this could also fall. Therefore, it is vital that you consider investment risk of certain investment strategies.

What is an AMRF?

An Approved Minimum Retirement Fund is a post retirement fund that you control and can invest for the purpose of providing an income beyond aged 75.

Features:-

Maximum you can invest in an AMRF is €63,500 – you are only required to have one AMRF.

Before aged 75 you can only withdraw from accumulated investment income and gains from your AMRF subject to PAYE

No “Imputed Distribution” requirement – need to take an income each year

At aged 75 AMRF converts to an ARF.

Can you invest into an ARF?

The eligible contracts are:

Personal Retirement Savings Accounts & Personal Pension Plans.

Defined contribution occupational pension schemes whose rules have been amended to provide the ARF option to retirees – this is not always the case and the option does not apply to Defined Benefit arrangements. Schemes set up post 2011 will automatically include this option.

Buy-Out Bonds – however, scheme where the transfer came from must have had rule change to permit ARF option to the member at the date of transfer.

Approved Retirement Funds can transfer between ARF providers and investment funds

AVCs (additional voluntary contributions) and PRSA AVCs.

ARF or an annuity?

Buying an annuity / pension for life means that on the day you purchase your annuity you exchange the full value of your pension fund less tax free cash for a regular income for the remainder of your lifetime.

Annuity income is secure – dependent upon the strength of the annuity provider.

Once you have made decision to purchase annuity IT CANNOT BE REVERSED

On death the income will cease UNLESS you have selected a joint annuity – where payment will continue to your spouse for the remainder of her lifetime

Or, where you have been eligible to purchase an AMRF/ARF – you could purchase an investment annuity, this is where there is a death benefit payable on death equal to the initial purchase price less any payments received.

On receipt of pension/ annuity from a life company you will become an employee and taxed accordingly at 20% or 41% and USC up to age 66. The State Pension and other income such as dividend and rental income is added to this figure.

Currently those over 65 are exempt from tax if the total income is less than €18,000 if single or €36,000 when married.

Buying an ARF is more about capital preservation and control – however, as discussed already your asset may be depleted by the fact that your income requirement annually may reduce your lump sum each year.

Your capital could reduce to zero.

If you require figures we provide estimates during our retirement planning meetings.

What happens to my ARF when I die?

You own the ARF personally therefore this asset can be passed directly to a beneficiary on death.

The taxation is wholly dependent upon the relationship of donor to beneficiary.

ARF Funds – Tax treatment on death:

These apply to gross ARF funds i.e. set up after April 2000.

Funds to Income tax Inheritance tax
Spouse’s ARF Subsequent withdrawals subject to PAYE (Spouse Exemption)
Child under 21 Taxable inheritance
Child over 21 Subject to 30% Income Tax

Exempt

Other

(Including directly to Spouse)Treated as income of deceased in year of death.

By default QFM deducts higher rate of income tax at source under PAYETaxable inheritance

(Spouse exempt)

These rules can change from year to year

Buying an Annuity – “Pension”

You have the option to compare the market – all pension contract offer an “open market option”.

Nelson Life can source the best solutions for you and help you make a better decision.

WARNING : SOME RETIREMENT CONTRACTS HAVE AN UNDERLYING ANNUITY RATE THAT WAS WRITTEN INTO THE CONTRACT WHEN THE PENSION WAS SET UP INITIALLY – THESE CAN BE AS HIGH AS 12.00% PER ANNUM.

Options to consider:

  • Your age when you decide to buy annuity
  • Are you in good health – some providers may quote a higher rate if you have a specified condition
  • Joint or single life annuity
  • Level or increasing in payment during the term
  • Guarantee period 5,10 or 15 years
  • Overlap on death 100.00% – 0.00%
  • Amount of capital to be used to purchase annuity

WARNING : YOU CANNOT REVERSE THE DECISION TO PURCHASE AN ANNUITY SO IT IS VITALLY IMPORTANT TO SEEK ADVICE FROM SOMEONE KNOWLEDGEABLE AND HAS ACCESS TO LEADING ANNUITY PROVIDERS WHEN MAKING DECISION.

Have you moved jobs and left a pension behind you?

If you have worked for a previous employer and they had a pension scheme in place for you then when you leave that company you have some options :

Many of our clients do not realise that you do have clear options – these include

  1. Leave the pension fund with your old employer – you will have to ensure that you keep them updated if you change address in the future
  2. Transfer to your new employer – provided they have a pension scheme in existence. Note that if you do this then new scheme rules over rule the old scheme rules.
  3. Transfer to a personally owned policy such as ;
  • PRSA – not possible if over 15 year service – and access 25% of the fund at retirement
  • Personal retirement bond – this will lock in the tax free entitlement you had at the time you left service with your employer i.e. if you have 20 year service you can access 150% of salary at NRA

Things to check:

  • Are there any penalties for transferring away from the past employer scheme?
  • Is there an underlying annuity rate that I will lose if I transfer away?
  • Are there bonuses to be added to the past employer scheme that I will miss if I move?
  • What are the fees to set up new policy?
  • Am I able to access monies from aged 50 without penalty?

Talk to us if you have a previous employer pension scheme and we will guide you through the choices and highlighting any potential pitfalls.

Self Administered Pensions, Approved Retirement Funds and Personal Retirement Bonds.

Nelson Life can structure self-administered

  • Executive pensions
  • Personal pensions,
  • Approved Retirement Funds and
  • Personal Retirement Bonds

to ensure that you have more control over the investment of your money.

A self administered product can invest into a much broader range of investment options such as :

  • Capital secure products
  • Direct equity holdings – shares
  • Government and corporate bonds
  • Insurance funds and
  • Property investment option – commercial or residential

These investment options may only be suitable for larger investment portfolios.

Revenue rules apply to the above and certain investments may not be permitted

 

However, please contact us for more information

Executive Pension Schemes - why plan now?

The State Pension is now only €223.00 per week – is this enough for you?

If you were born after on or after the 1st of January 1961 you will now have to wait until age 68 to collect the State Pension.

Planning to supplement your income has never been more important.

We can help you if you are a company director and looking to supplement your income by making employer investments into your pension.

Frequently asked questions:

  • How much will I need?
  • What are the tax benefits and how significant are they?
  • How much can my company pay in on my behalf each year?
  • Can you meet my accountant and discuss?
  • What are the charges and how do we minimise them?
  • What do you get paid and can you offer a fee service?
  • What Investment strategy should I follow and how do we benchmark?

We are expert pension advisors and will ensure all questions are answered with no ambiguity.

please contact us for an appointment.

What is an Executive Pension?

Executive Pension is a pension fund set up by employers for executives or key employees of the company.

The pension is set up under a trust and typically the employer will act as the trustee.

However, we can offer third party trustee company to take responsibility for trustee services.

The company can make investments into the pension contract.

The value of the pension is dependent upon the following key criteria

  • Your/companies monthly/yearly investments
  • Investment growth
  • Charges deducted
  • Term invested for

There is no other more tax efficient way to extract money from your company and all directors should have a company pension contract – even if it is the very minimum investment level.

The benefits of investing into a company pension scheme:

Company investment is deductible for Corporation Tax as a business expense.

Corporation Tax relief is also available on large once-off contributions. Revenue approval may be required and relief can be spread forward up to 5 years.

No benefit-in-kind charge so no USC charge payable (Note there is if paying into a PRSA contract).

Your plan enjoys tax free investment growth if funds rise in value.

At Normal retirement age you can decide to take tax free lump sum without the need to either sell shares in your company or cease employment.

You have the option to take 25% tax free and invest remainder into annuity/AMRF and/or ARF,

OR,

Take up to 150% x final salary if you have 20+ year service and invest remainder into an Annuity (note AVCs can be invested into AMRF or ARF or purchase an investment annuity – annuity with death benefit payable if initial purchase price > payments received at date of death.

NOTE: Pension levy of 0.75% of the value of the plan’s assets at June 30th 2014 payable.

If you would like to learn more and have a specific question please contact us.

What can the company invest?

The maximum pension benefit that can be provided for at retirement is equal to a pension 2/3rd of income.
The Revenue have recently clarified the exact formula required to calculate the maximum benefits allowable to a company director.

The maximum level of contributions that can be made by the company exceeds that can be invested into a PRSA policy.

Key factors that need to be known in order to make an accurate calculation of the maximum investment into your company pension fund are:

  • Salary you are taking from the company
  • Length of service with company
  • Are there any retained benefits – pension monies from previous employment or sole trader days
  • Date that you expect to take your retirement benefits – normally between 60 and 70
  • Your marital status

The current maximum pension fund is set at €2,000,000 – Standard Funds Threshold – it is widely believed that this threshold will be reduced in future years.

If you are in any doubt please contact us and we will ensure that your questions are answered and certainty is given to your position.

Death before my normal retirement age?

Unfortunately, not all of us will make it to age 60+ and may die before retirement age.

Firstly, we strongly recommend that your dependents have additional life cover arranged by the company and/or have adequate personal life cover to cover mortgage and financial needs of all dependents.

On death, your pension fund is not lost. Instead it is paid out as follows:

  • Maximum tax free lump sum paid to your spouse equal to 4 x salary at the date of death
  • Residual fund is used to purchase an annuity for the remainder of spouses lifetime
  • Any AVCs are also paid to your spouse/ partner and /or dependents

Life cover planning is a simple yet critical part of financial planning and we are available to discuss options.

Using a PRSA to fund for my retirement.

The State Pension is now only €223.00 per week – could you survive on this?

If you were born after on or after the 1st of January 1961 you will now have to wait until age 68 to collect the State Pension.

Planning to supplement your income has never been more important.

We can help you if you are an employee, sole trader, company director and looking to supplement your income by making employer investments into your pension.

Frequently asked questions:

  • How much will I need?
  • What are the tax benefits and how significant are they?
  • How much can my company pay in on my behalf each year?
  • Can you meet my accountant and discuss?
  • What are the charges and how do we minimise them?
  • What do you get paid and can you offer a fee service?
  • What Investment strategy should I follow and how do we benchmark?

We are expert pension advisors and will ensure all questions are answered with no ambiguity.
Contact us for an appointment.

What is a PRSA?

A PRSA is an very tax-efficient way for you to save for your retirement – it is a policy that you own personally and is very portable.

An AVC PRSA is used if you are member of a pension scheme (Public Sector or Private Sector) and you wish to have more investment choice.

All investments you make to a PRSA / AVC PRSA qualify for tax relief if you have PAYE income – either at 20% or 41%.

  • If 20% tax payer then €100.00 gross will cost you €80.00 net per month
  • If 41% tax payer then €100.00 gross will cost you €59.00 net per month.

You can start, stop, increase or decrease your contributions at any stage without penalty.

There are two types of PRSAs available:

Standard PRSA
Maximum charge 5% per contribution and 1% per annum annual management fee.
Restrictions on funds that can be invested into.

Non-standard PRSA
No limit on charges and much broader investment choice.

Maximum amounts that can be invested are dependent upon age the maximum earnings cap set at €115,000 per annum.

Age in year Maximum tax deductible

Age                   Percentage of salary
29 or less        15%
30 to 39          20%
40 to 49          25%
50 to 54          30%
55 to 59           35%
60 plus            40%

Investing my PRSA?

The PRSA you decide to invest in should offer you a diversified range of investment options that offer a comprehensive risk spectrum of funds.

We strongly advocate taking time to really understand your ability to accept risk and loss balanced with the potential to make gains.

The size of the retirement fund you will have in the future is very dependent upon the growth that you fund achieves over the investment period.

Most companies now grade their investment funds and have them all rated according to ESMA – this helps you to better understand the volatility that you may experience if invested in one of these funds.

It is critical to get professional advice when choosing a pension fund to invest into.

We are available to discuss and help you learn more.

Taking your tax fee cash from your PRSA?

Under current legislation you can access your PRSA from aged 60.

On ill health or early retirement you can access your tax free cash from aged 50 onwards.

Unlike a company pension the full value of a PRSA is payable to your estate on death before NRA.

Your options when taking tax free cash:

You are eligible to take 25% of the balance of the fund tax free – up to €200,000 tax free cash since Dec 2005.

Next €300,000 is taxed at 20% and balance is taxed at marginal rate plus PRSI + USC

Tax free lump sums taken on or after 7/12/05 will count towards “using up” the tax free amount. If you have already taken tax free retirement lump sum of €200,000 or more since 7/12/05, any further retirement lump sums paid to you will be liable to income tax at either standard rate , or at marginal rate where exceeds €500,000.

Residual monies after tax free cash you can either:

  • Invest into an annuity for the remainder of lifetime – see section on annuities
  • Invest €63,500 into an AMRF and balance into ARF
  • Remain invested into a PRSA and becomes “Vested PRSA” – no longer avoids the 5% “imputed distribution” and distribution must be taken from aged 61
  • Option to invest first €63,500 into an AMRF and take the balance as a taxable lump sum subject PAYE , unless have a guaranteed income of €12,700
  • Trivial pension if less than €20,000 after taking tax free cash can be drawn down as a taxable lump sum.

STANDARD FUNDS THRESHOLD

From 1/1/14 the Standard Funds Threshold is €2,000,000

For defined benefit entitlements an age related factor will be used to calculate an individual’s Personal Funds Threshold for all benefits accruing after 1/1/14 ( a valuation multiple of 20 is used for benefits accrued before 1/1/14).

We provide advice to both employees in public service pension schemes and private pension schemes

Personal Pension Plan - Why should I plan for my retirement?

The State Pension is now only €223.00 per week – could you survive on this?

If you were born after on or after the 1st of January 1961 you will now have to wait until age 68 to collect the State Pension.

Planning to supplement your income has never been more important.

We can help you if you are an employee, sole trader, company director and looking to supplement your income by making employer investments into your pension.

Frequently asked questions:

  • How much will I need?
  • What are the tax benefits and how significant are they?
  • How much can my company pay in on my behalf each year?
  • Can you meet my accountant and discuss?
  • What are the charges and how do we minimise them?
  • What do you get paid and can you offer a fee service?
  • What Investment strategy should I follow and how do we benchmark?

We are expert pension advisors and will ensure all questions are answered with no ambiguity.
Contact us for an appointment.

How much should I invest?

A Personal Pension is an very tax-efficient way for you to save for your retirement – it is a policy that you own personally.

All investments you make to a Personal Pension qualify for tax relief if you have PAYE income – either at 20% or 41%.

If 20% tax payer then €100.00 gross will cost you €80.00 net per month

If 41% tax payer then €100.00 gross will cost you €59.00 net per month.

Maximum amounts that can be invested are dependent upon age the maximum earnings cap set at €115,000 per annum.
Age in year Maximum tax deductible
Age                    Percentage of salary
29 or less         15%
30 to 39           20%
40 to 49           25%
50 to 54           30%
55 to 59            35%
60 plus            40%

Where do I invest my Personal Pension Plan?

The Personal Pension you decide to invest in should offer you a diversified range of investment options that offer a comprehensive risk spectrum of funds.

We strongly advocate taking time to really understand your ability to accept risk and loss balanced with the potential to make gains.

The size of the retirement fund you will have in the future is very dependent upon the growth that you fund achieves over the investment period.
Most companies now grade their investment funds and have them all rated according to ESMA – this helps you to better understand the volatility that you may experience if invested in one of these funds.

It is critical to get professional advice when choosing a pension fund to invest into.

We are available to discuss and help you learn more.

How can I take benefits from my Personal Pension Plan?

Under current legislation you can access your Personal Pension from aged 60.

Unlike a company pension the full value of a Personal Pension is payable to your estate on death before NRA.

Your options when taking tax free cash:

You are eligible to take 25% of the balance of the fund tax free – up to €200,000 tax free cash since Dec 2005.

Next €275,000 is taxed at 20% and above €501,000 is taxed at marginal rate plus PRSI / USC

Residual monies after tax free cash you can either:

  • Invest into an annuity for the remainder of lifetime – see section on annuities
  • Invest €63,500 into an AMRF and balance into ARF
  • Remain invested into a PRSA and becomes “Vested PRSA” – no longer avoids the 5% “imputed distribution” and distribution must be taken from aged 61
  • Option to invest first €63,500 into an AMRF and take the balance as a taxable lump sum subject PAYE , unless have a guaranteed income of €12,700
  • Trivial pension if less than €20,000 after taking tax free cash can be drawn down as a taxable lump sum.
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More Questions?

Please contact us with your question