Planning ahead for retirement
What is a State Pension?
A state pension will provide you with a basic level of retirement income, provided you qualify.
For example, the full state pension (contributory) is €13,172 per year (or €253.30 per week). The state pension increases by €10 per week for those over age 80. (Correct as of Jan 2022)
For info on your state pension entitlements, you need to contact Intreo Centre
State Pension (Contributory)
The state pension (contributory) is paid to people from the age of 66 who have enough (PRSI) contributions. It is sometimes called the old-age pension. The state pension (contributory) is not means tested. You can have other income and still get it. People who apply for the state pension (contributory) after 1 September 2012 and who do not qualify for the maximum rate of pension because of gaps in their PRSI record can be assessed under a new Total Contributions Approach and can use the new Home Caring Periods Scheme to help them qualify for a higher rate of pension if the gaps can be attributed to be a career. The new Total Contributions Approach (TCA) means that the total number of PRSI contributions you paid, instead of when they were paid, are considered when the Department of Social Protection (DSP) assesses your application for a pension
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.
To qualify for a state pension (contributory) you must be aged 66 or over and have enough Class A, E, F, G, H, N or S social insurance contributions (PRSI). These are also called full-rate PRSI contributions
There are a number of additional benefits payable to retired people.
State Pension (Non-Contributory)
The means-tested state pension (non-contributory) is a payment for people aged over 66 who do not qualify for a State Pension (contributory) or who only qualify for a reduced contributory pension based on their insurance record.
To qualify for the State Pension (contributory) your income /assets are means tested under cash income (including income from work), value of capital (for example, savings, investments, cash on hand and property but not your own home) and income from property personally used. The state pension (non-contributory) is €12,584 per year (or €242 per week) from January 2022. From January 2022 the weekly rate for a qualified child will be €40 for children under 12 years of age and €48 for children aged 12 years and over
There are a variety of PRSI classes which determine the contribution payable by you and the benefits available to you. Most people who are working pay Class A PRSI contributions may be entitled to all the main social welfare benefits, including state pension.
Self-employed pay Class S and are also entitled to state a pension. Additional Benefits In addition to your pension from the state, there may also be a Qualified Adult’s allowance and/ or a Qualified Child’s allowance payable, if the conditions for their payment are met. The state also pays widow’s, widower’s or surviving civil partner’s pensions, again subject to certain conditions being met
There are a number of additional benefits payable to retired people.
These include a living alone allowance for those who qualify, free travel, and a household package for people aged over 70 that includes help with electricity, gas, and TV licence costs.
A number of conditions need to be met in order to receive these benefits and you will need to check these conditions at the time
Applying for a State Pension (Contributory)
You cannot apply online. You should apply 3 months before you will reach the age of 66. However, if you have paid social insurance contributions in more than one country, you should apply 6 months before you will reach 66.
Applying for a State Pension (Non Contributory)
To apply fill in a State Pension (non-contributory) application form (pdf). You can get an application form from your Intreo Centre or Social Welfare Branch Office, post office or Citizens Information Centre.
You should send your completed application form to the address below. You should apply three months before you reach 66.
State Pension Non-Contributory Section
Department of Social Protection
What is a means Test?
To qualify for a social assistance payment you must satisfy a means test and a habitual residence test.
A means test is a way of checking if you have enough financial resources to support yourself and what amount of social assistance payment, if any, you may qualify for. In a means test the Department of Social Protection examines all your sources of income.
How your means is calculated and the amount of means you are allowed to have varies from payment to payment. This document gives a general overview of the means test.
Sometimes a certain amount of income or income from particular sources is not taken into account and these are often referred to as income disregards. Disregards can differ from payment to payment – we list the most important ones in the information on each payment and there is a full list in our document, Cash income not included in the means test.
For more on means test: click here
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State 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
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.
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?
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: firstname.lastname@example.org Web: https://www.pensionsauthority.ie/en/
Talk to us now and make an appointment with one of our Letterkenny team of QFAs. We are here to help with your Financial Planning Concerns. Ask us questions on Retirement & Pension, Life Insurance & Protection, Mortgages, and Investment Advice. Get in touch here or give us a call at 074 91 03938.
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