Personal Pensions Advice Donegal

It’s never too late to save for retirement

What is a Personal Pension Plan?

A personal pension plan is a long-term investment aimed at helping you set aside money for your retirement. It is a retirement savings plan in which you make contributions either on a regular basis or a once off lump sum.

Personal pension plans are designed for people who don’t have a pension scheme through work and who want to set aside money themselves or self-employed individuals who wish to provide for their retirement. A Personal Pension Plan can be otherwise known as a (PPP).

 

advice first retirement plan considerations pension review 2022

Where can you take out a Personal Pension Plan!

Pension arrangements are provided by insurance companies. You can buy them directly with the companies or through banks and brokers/financial advisers.

There are many types of pensions on the market and choosing one that suits you can be difficult and confusing. Here are some things to think about when choosing to put in place a pension.

  • Shop around some financial advisors to give yourself the widest choice and take your time to get as much information as you can before you decide. A trusted financial advisor will be able to help with this.
  • Get and make sure you read the Disclosure Notice document AKA the Key Features Document. It sets out all the important facts about the plan. This must be given to you by the insurance company or broker before you sign to place a pension in place.
  • Make sure you can afford the contributions as some pensions have a minimum payment.
  • Check what charges you will have to pay, and when. Examples of some of the charges are set up, allocation rate, bid/offer, fund management, fund switching etc.
  • Many of the charges will be deducted from your fund and will affect the value of your pension.
  • Make sure you are happy with how your contributions are going to be invested and that you are happy with the level of risk you are taking.

Pensions can be complicated so it is recommended that you get independent financial advice. More information on getting financial advice can be found here

Do not sign any documentation until you understand and are happy with your choice.

Getting Financial Advice

Pensions are complex products and can be difficult to understand. However, they are a good way to save for your future and ensure you have enough money at retirement, so it’s important to know what you are getting and ensure it is the right pension for you.

If your employer offers an occupational pension, they might also offer you access to advice or provide guidance about joining their scheme, so you should first talk to them.

If you are a member of a public service scheme you can contact the relevant section in your workplace for information.

If you want to put in place a personal pension, strongly consider getting financial advice. Pensions are long-term investments, so you need to be sure you understand the types of fund you’re investing in, the risks and the suitability for your particular situation.

How much to Invest

There are factors that you need to consider before deciding on how much to invest. Considerations include:

  • 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

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 if you are faced with financial difficulties. Your Advisor will give you expert guidance based around what amount you should invest into your Personal Pension Plan.

A Personal Pension Plan gives you the flexibility to make contributions either monthly, quarterly, every six months or every year.

What happens to the money I pay into a pension plan?

The insurance company will invest your money in a fund or a number of funds that they feel will perform best to make as much money as possible for you over the life of the plan. The diagram below shows the type of funds that an insurance company could invest in on your behalf, for example, buying shares in different companies, buying government bonds and investing in property. The insurance company will also take the money for various charges from your contributions.

Top Tip
Investing in funds does not guarantee a positive return and you may not get back all the money you put in.

Personal-Pensions-Advice-Info-Graphic

How do I decide where to invest my Personal Pension Plan

Your Personal Pension Plan will prove to be an important source of income in retirement. There are many options available to you which range from low to high-risk funds. These funds include:

  • Investing in types of assets to be managed
  • Investing in a spread of assets
  • Investing in self-directed funds where you choose the funds or assets in which you invest.

Any choice that you make should be based on the level of investment risk you are comfortable with and should consider your financial circumstances and goals. It is very important your understand the risks involved in investing your pension fund, your advisor will help you put together the right investment strategy that suits your requirements.

FACT FILE:
If you make no decision on how to invest your Personal Pension Plan it may be automatically invested in a default fund by your provider, which may or may not be suitable for your circumstances.

Tax Relief on Contributions

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.

If you pay tax at the 41% rate, for each €1 you contribute to your Personal Pension Plan you can claim 41% back in tax relief. If you invest €1,000 in your Personal Pension Plan per year, it will actually only cost you €590, after income tax relief.

If you’re a PAYE worker, this tax relief is generally applied at source by your employer. You can also apply for the relief online at Revenue’s myAccount service. If you’re self-employed, you can apply for tax relief on contributions by using Revenue’s Online Service (ROS). This relief is more generous as you get older. However, you pay PRSI and the Universal Social Charge on your pension contributions.

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

Personal-Pensions-Advice-Graph
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.
If you invest €1,000 in your Personal Pension Plan per year, it will actually only cost you €590, after income tax relief

How can I take benefits from my Pension Plan

From the age of 60 up until the age of 75 you can access your Personal Pension Plan. You can also access your Personal Pension Plan on ill health retirement at any age. The value of your Personal Pension Plan is payable in full to your estate if you die before drawing on your benefits.
Your Advisor will be able to talk you through your options and guide you in choosing the best option for you when the time comes.

You will have a number of options when it comes to taking your retirement benefits from your Personal Pension Pan. With the accumulated fund, you have two options: you can take a lump sum of up to 25% of the fund, you can either buy an Annuity with the remaining balance or invest it in an  Approved Retirement Fund (ARF)

Lump sum amount (25% of fund)

Rate of tax

Up to €200,000

Tax free

Next €300,000

Standard rate (currently 20%)

€500,001 and over

Marginal rate (currently 40%) plus PRSI and USC

Transferring

With PPP’s you have the option to transfer funds accumulated with one provider to another fund with another provider. There may be costs involved in doing this and you should seek advice before making any decisions.

FACT FILE:
Personal Pension Plans put in force since April 1999 can be transferred to another Personal Pension Plan. They may also be able to be transferred to a Personal Retirement Savings Account (PRSA), if the provider operating the Personal Pension Plan allows for it.

How Advice First Financial can help with your Personal Pension investment choice.

Your Advice First Advisor will get to know you, your financial needs, attitudes to and capacity for investment risk and ultimate goals. We will guide you through the basic elements of investing – risk and return, diversification, and your own attitude to risk – and ensure you understand what’s at stake. With help from your Advisor, you can create a diversified range of investments within your Personal Pension. This means you can spread your money in a way that suits your needs and is in line with your risk and return expectations and how you expect to take your benefits at retirement.

What some of our happy Personal Pensions customers have to say…

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Pascal is an excellent financial advisor who is highly knowledgeable and sincere with a unique talent to help put us at ease when making committed financial decisions. We would highly recommend Pascal and his team to look after and guide those who require a steady and able steer in the right direction, while taking all the hard work out of it.

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Personal Pensions FAQ’s

Am I eligible to take out a Personal Pension Plan?

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

How much should I invest in my Pension Plan?

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.

How do I claim income tax relief?

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.

Are there any age restrictions on a personal pension plan?

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

What happens after I apply for my plan?

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.

What happens if I take out a personal pension plan and then I am no longer eligible?

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 be best to stop payments into your Personal Pension. But do seek advice.

What is the minimum term?

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

How can I pay?

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.

Can I change my contribution level?

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.

Can I protect my contributions against inflation?

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

Can I have more than one pension plan?

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.

Personal-Pensions-Advice-Graph

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.

Can I use my pension plan as security for a loan?

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).

Do I have to pay tax on my pension?

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.

What is a personal fund threshold?

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.

What happens if I have to retire early because of ill health?

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.

Can I take money out of my pension?

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.

Do I have to retire to get my pension?

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.

What happens if I die before I retire?

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

Can I cancel my plan?

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.

Family law and pensions

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: info@pensionsauthority.ie Web: https://www.pensionsauthority.ie/en/

If you have questions or need Personal Pensions Advice, call 074 9103938 or email now