Almost on a daily basis someone asks us “what should I do with my pension payout at retirement?”, a question that is best answered at an individual level.
In 2014 the people of Ireland took to the streets to protest about water charges. In the same year, access to the state pension was increased from age 65 to 66, with access increasing to age 67 in 2021 and age 68 in 2028. Overnight a decision was made to take more than €30,000 from people’s pockets and not a sound was heard on our glistening city streets.
For those of us who know and admittedly love this industry, we pondered how this could be. The answer – our beloved Irish people just did not understand what had been taken from them. So how can we lend a hand in closing this knowledge gap and ensuring that people understand what happens to their pension arrangement when they eventually retire?
The only answer – educate, educate, educate.
To be fair past governments have attempted to simplify the pension products that exist and introduce new measures to improve our understanding of how pensions in Ireland work. An example of this was the introduction of PRSAs in 2002 – a basic pension product believed to be the answer to all our pension confusion. Unfortunately it didn’t have the desired effect so education is the only answer to this retirement information deficit right now.
What should I do with my pension payout at retirement?
This may seem like a get-out-of-jail-free, pass-go-and-buy-all-the-hotels-on-the-way, card answer but – you need to talk to a financial advisor.
Everyone’s retirement situation is different so there’s no ‘one-size fits all’ answer here. However to help you, here are some high level pension options available:
- Every private pension holder will be given access to a ‘tax free lump sum’. The amount of this lump sum depends on your pension and/or your employment. It will always be optional in the retirement ‘options pack’ – but always take it!
- After the lump sum is calculated, the remaining ‘options’ are as follows:
- Annuity – income for the rest of your life but ends when you pass away.
- ARF – further invest the retirement fund. Can be left to dependents on death.
- Taxable Cash – withdraw remaining funds at your marginal rate of tax.
- AMRF – invest a portion of your remaining fund until age 75. Limited access.
The above options come with a number of criteria and conditions which will depend on your retirement fund size, employment, age and health.
Should I access my pension straight away?
In general, it is best to wait as long as you possibly can before accessing your pension fund. If you have to draw down your funds now, the ARF/AMRF option is likely to work well for you given the flexibility they offer versus the current low interest rate annuity option.
If you’d like to speak to someone about your pension, please feel free to contact us today.