Personal Pensions Advice Donegal

As income tax relief is available on contributions into the plan, up to certain limits, you must meet certain conditions to be eligible to take out a personal pension plan.

• You must be legally responsible for paying tax in Ireland. (This means Irish tax is due on any profits or earnings you make.)
• Your income must be ‘earned’ – this means that you can’t use money you’ve made from rent, dividends from shares and stocks, or returns you’ve made on investments. Basically, you can only use the money you’ve earned from your employment.
• To be eligible to take out a personal pension plan, your income must be taxable under Schedule D (case I or II) or Schedule E if you are in ‘non-pensionable employment’. Schedule D (case I or II) income is profits from a trade or profession, and usually applies if you are self-employed or working as a sole trader. Schedule E income includes earnings from employment and benefits-in-kind. ‘Non-pensionable employment’ is where you work for someone else but there is no pension scheme for you to join

The amount of money you should invest in your pension plan depends on:

• your age.
• how much money you want when you retire;?
• what benefits you’ve already built up; and
• when you’d like to retire.

If you want to retire quite soon with large retirement benefits, you will need to contribute more than someone who has longer to go to retirement and who doesn’t want as much. The Government has set certain limits for income tax relief purposes. Your adviser will be able to recommend a level of funding based on your needs. Income tax relief is not guaranteed.

If you are an employee and your personal contributions are taken from your bank account, you can apply on your MyRevenue account and apply to have your tax credits adjusted to reflect your pension contributions. If you are self-employed, you must include your pension contributions in your self-assessment tax returns to get income tax relief. Your accountant or bookkeeper can do this for you. Income tax and other tax will be due on any pension income you receive when you retire.

You must be between 18 and 73 to invest in this personal pension. You can take the benefits at any age between 60 and 75, or earlier in certain circumstances. You must take your benefits before your 75th birthday. If you do not, your personal pension will automatically become a Vested RAC. If that happens, you will have no access to your pension. If you want to have access your pension fund after age 75, you should speak to your financial adviser about your options before your 75th birthday

After your application has been assessed, you will receive

• your terms and conditions booklet, which outlines the standard terms of your contract with your provider,
• and your plan schedule and customer information notice (which outlines the specific details of your particular investment).

It is important that you read the details of your plan to make sure it meets your needs. Remember that a pension plan is a long-term commitment.

If you are working with an advisor this should not arise but if it does you will no longer be eligible if you do not earn an income that is taxable in Ireland or if you move into a pensionable job. That is where your employer has an in house pension plan. If this happens, you can continue contributing but cannot claim income tax relief. If you move into pensionable employment, you should contact your advisor as it is best to stop payments into your Personal Pension. But do seek advice.

The minimum investment period for regular contribution plans is two years. There is no minimum investment period for bond plans.

You can choose to make regular contributions. You can pay by direct debit (every month, every
three months, every six months or every year), or by cheque every year.

You can also invest a lump sum at any time. You can do this instead of, or as well as, making regular contributions. If you start off with just a one-off contribution, you can’t add regular contributions at a later date.

Yes. You can increase your contributions at any time. You can also reduce your contributions to the minimum allowed or take a break from making contributions if you want to. However, you need to remember that reducing (or stopping) your contributions will affect the value of your pension fund when you retire.

To help you to decide whether you need to increase your pension contributions, your provider will send you a statement each year showing:

• the contributions you have made;
• the value of your fund; and
• an estimate of the pension you will receive when you retire.

We recommend that you review your retirement plan with adviser each year.

Yes. When you take out your plan, you can choose to have your contributions increase with inflation. If you choose this option, your contributions will increase each year in line with:

• the Consumer Price Index  or
• 5%

whichever is higher.

Yes, if you are eligible for a personal pension, you can have a number of plans. The Revenue Commissioners will add up all the contributions and you will get income tax relief up to a certain limit.

This graph shows the maximum contribution you can make, as a percentage of your earnings, for which you can claim income tax relief.

It is important that you get advice on the amount you should be paying into your pension. You should also learn about the amount of pension benefits that will be available to you when you retire.

No. You cannot transfer the rights to your pension plan to a lender because pension plans cannot legally be assigned (in other words transferred to another person).

Under current Irish law, when you retire you can take some of the fund as a retirement lump sum.

You will have to pay standard rate income tax on any retirement lump sums between €200,000 and €500,000. Any amounts over €500,000 will be taxed as income at your marginal rate. The USC, PRSI (if it applies) and any other taxes or government levies due at that time will also be taken.

You will have a number of options as to how you can use the rest of your pension fund, and how you are taxed will depend on which one you choose.

• If you choose to buy a pension for life (annuity), your income will be taxed as income in the normal way and will include any tax due at that time.
• If you have the option to invest in an Approved Retirement Fund, (ARF) you will have to pay tax on any withdrawals that you make.

Under current Irish law, the maximum pension fund allowed for tax purposes is €2,000,000. The relevant maximum will apply to the total of all pension funds you may hold. You will pay tax on any amount over this as a one-off income tax charge when you take it when you retire. Tax will be paid at the higher rate of income tax.

If you have a personal fund threshold certificate issued from the Revenue, your maximum pension fund when you retire may be more than €2,000,000. You should contact your adviser for more information.

If you have to retire early because of ill health, and you apply for and get Revenue approval, you can take your pension benefits immediately. However, your pension may be low because your contributions are stopping at an earlier age and the pension will have to last longer as you will be retiring earlier.

You cannot take money out of your pension before you reach 60 unless you have to retire early because of ill health. You can transfer your plan to another approved personal pension plan with another insurance company or to a PRSA.

FYI: Depending on the funds you have chosen, there may also be a delay in moving your fund. Check with your provider on this.

No< you do not need to retire to get your pension. You can take your pension at any time from age 60 and continue to work. You can retire because of ill health at any time. However, the Revenue
Commissioners must agree to you taking your pension and you must take your pension immediately.

Before age 75:

If you have a personal pension and die before your 75th birthday, the value of your pension fund will be paid to your estate. As with any inheritance, your dependents may have to pay inheritance tax on any benefits we pay them.

From age 75

If you do not take your retirement benefits, your personal pension will automatically become a Vested RAC on your 75th birthday.

If you leave the funds to your husband or wife or registered civil partner, they can transfer the funds to an ARF in their own name. In all other cases, the funds are paid to your estate. If your estate has to pay income tax; your provider must deduct this before paying the proceeds to your estate.

Generally, the amount that is left is treated as income for the year of your death.

There are a number of exceptions to this rule.

Income tax is not due if:

• the funds are transferred to an ARF in your husband’s, wife’s or registered civil partner’s name. However, PAYE is due on any future withdrawals.

• the funds are transferred for the benefit of your children who are under 21 on the day you die.

Income tax will be due at a rate of 30% if the value of your Vested RAC is transferred for the benefit of any of your children who are over 21 on the day you die. As well as income tax, there may also be capital acquisitions tax due on the value of your plan, if your Vested RAC is not paid to your husband, wife or registered civil partner or to any of your children over 21 years of age. The beneficiaries are responsible for paying this tax. Irish tax law changes over time and you should get independent tax advice on this.

Pension life insurance

The value of your fund may not be enough to provide for your dependants when you die, particularly in the early years when the value of the fund is low. Pension life insurance is life cover

that you can take out and which will pay your dependants a guaranteed lump sum if you die during the term of the plan. The advantage of this type of life insurance is that, if you are eligible, you can claim income tax relief on your contributions.

You should discuss this with your advisor

Yes, you can cancel your plan. If you do this within 30 days from the date you are sent your Welcome Pack (or a copy), your provider will cancel your plan. They will refund any regular contributions you have made. They will arrange to return any single investments, less any fall in investment values during the period. They will return any transfer values, less any fall in investment values during the period and in line with Revenue rules. Before cancelling you should talk to your adviser. If, after taking out this plan, you feel that it is not suitable, you may cancel it by writing to your plan provider.

If you are involved in a judicial separation or divorce or dissolution of a civil partnership or ending of a relationship with a qualified cohabitant, a pension adjustment order may be granted by the court. There is no option to set up an independent benefit within this plan.

A pension adjustment order issued by the court will override the terms and conditions of your PRSA plan. This will direct your plan provider to pay all or part of the benefits under this plan when you retire or die, to any person named in the pension adjustment order.

If a pension adjustment order has been granted on your plan, you must let your advisor and or plan provider know. You can get more information on how a pension adjustment order works from your solicitor or from the Pensions Authority at the following address

The Pensions Authority, Verschoyle House, 28-30 Lower Mount Street, Dublin 2.
Phone: 01 613 1900 Email: [email protected] Web: https://www.pensionsauthority.ie/en/