Retirement Financial Planning
Retirement financial planning is about maintaining the standard of living you want in retirement, and is achievable with good pension plan. We provide and advise on the benefits of the following pension schemes:
A pension product, suitable for both directors and employees within a limited company organisation. It is set up by trustees on behalf of its members (employees) and the pension fund is kept totally independent from the business. A separate retirement financial planning fund is kept for each member and the pension payable at retirement to the individual will depend on the value of the fund available (Defined Contribution). It’s also a tax effective way for both employees and employers as employees get income tax relief on contributions paid, it grows tax free and they are entitled to a tax free portion at retirement. Meanwhile employers can treat their contributions as an expense against their trading profits which gives rise to corporation tax relief.
PRB’s – Personal Retirement Bond
When looking into retirement financial planning you’ll consider a Retirement Bond. A Retirement Bond is an insurance policy designed to accept a transfer payment from an Occupational Pension Scheme. It is also known as a Buy Out Bond. A Retirement Bond may be taken out by a member of an Occupational Pension Scheme as a result of:
- The member leaving the Occupational Pension Scheme
- The Occupational Pension Scheme being wound-up
- A Transfer from an existing Retirement Bond (once relating to the same employment)
A PRB can only ever accept more than one transfer payment where the additional transfer relates to the same employment. The bond is taken out in the individual’s own name which means the member now has greater control in managing their own retirement benefits. It gives you independence from your former employer’s pension scheme and the trustee(s) of that former pension scheme.
Pension for staff in companies under TrustA group pension plan is straight forward and cost effective way to provide pension benefits for employees. Normally a ‘defined contribution’ structure means the eventual value of the pension is dependent on both employer and employee contributions and the performance of the pension fund during your working years. It is a tax efficient way for both employees and employers to build a fund for its members retirement. Setting up a group pension plan is a tax efficient way to attract employees. All company contributions receive tax relief against corporation tax. Members are also entitled to tax relief on contributions paid, tax free growth on their pension and a tax free lump sum at retirement.
SSAP’s – Small Self-Administered Pension Plan
A SSAP is designed to give you alternative and flexible ways to plan for your retirement. A SSAP will give you greater control over your pension planning and the type of post-retirement income you can expect. Most importantly, when you pass away, your estate inherits the underlying assets in the SSAP.
Both employees and directors can set up a SSAP. You as the individual control how the SSAP is invested. Setting up a SSAP arrangement gives you a range of investment options including (but not restricted to) shares, bonds, property/land and even allows you to offset expenses, receive rental income (as your income in retirement) and pay no Capital Gains Tax. These features make setting up a SSAP an extremely tax efficient way to save for your retirement. You can also pay sizeable contributions into the scheme, including company pension contributions.
SIPP’s – Self-Invested Personal Pensions
Unlike the SSAP which provides a tax efficient saving structure for company directors and employees, a Self-Invested Personal Pension (SIPP) is a personal pension set up for self-employed individuals, sole traders and people in non-pensionable employment. For people seeking alternative investment choices when funding for retirement, SIPPs have provided additional options to those looking for greater control over their pension pot in retirement including shares, property syndicates, land structured deposits/bonds, unit trusts and more. Pension premiums qualify for tax relief, investments grow tax free, deposits grow DIRT free and a tax-free lump sum will be available on retirement. The difference between a SIPP and a traditional Personal Pension Plan is that YOU decide how and where your pension funds are invested.
A Personal Pension is a long term savings plan designed to provide benefits in retirement in a flexible and tax efficient manner. Also known as a Retirement Annuity Contract, a personal pension is used by an individual who is not a member of an employer sponsored pension scheme or in non-pensionable employment i.e. the only benefits provided by the employer are death in service, in order to plan for retirement. Individuals who pay into the traditional personal pension are eligible for tax relief on contributions paid into an approved personal pension arrangement, subject to limits. As you get older, this relief increases but there is a cap on the earnings that may be taken into account – €115k. From Jan 1st 2014, the Standard Fund Threshold has been €2 million. This is the maximum that should be funded for as tax implications apply to any pension pot that exceeds this limit.
PRSA’s – Personal Retirement Savings Account
Developed in 2002, a PRSA is an easy-to-understand pension plan available to anyone who wants to plan for their retirement – unemployed individuals, casual / part-time employees, homemakers, carers, job seekers, contractors, or any employee who does not qualify / is not a member of an company pensions scheme (occupation pension). With a slightly more limited range of funds on offer, standard PRSAs similarly offer a slightly lower set of fees so that you can stay in control of your fund while still availing of an adequate retirement funding option. Tax relief on premiums paid is also available to employees / self-employed individuals at the PRSA holders marginal income tax rate, subject to revenue limits. Anyone paying into a PRSA who is not currently in an self-employed / employed status will not qualify for tax relief, however relief may also be backdated/carried forward. A PRSA provides benefits at retirement based on the amount of contributions paid and the investment returns earned on those contributions. If restrictions apply to entering an occupational pension scheme, your employer must provide access to a standard PRSA however employers are not required to contribute.
AVC’s – Additional Voluntary Contributions
AVCs are pension contributions that individuals can make into their employer pension scheme in order to build their retirement fund. Most notably, they are used to ‘top up’ the employer pension benefits, if they fall short of the maximum pension allowance at retirement. Some individual earnings i.e. overtime, bonuses and other allowances may not qualify for pension benefit purposes so using the AVC option can help individuals boost their pension income in retirement. You have complete control over what you pay in and when you wish to stop/start so this allows you to only save what you can afford to. As with all pensions, contributions are subject to annual revenue limits but you will benefit from tax relief on the amount you pay in from your paid employment source under these tax limits.
ARF’s – Approved Retirement Funds (Following Retirement)
An Approved Retirement Fund is a post-retirement investment fund which can be taken out by a member of an employer pension scheme, a Personal Retirement Bond, a Personal Retirement Savings Account (PRSA) or a Personal Pension policy holder. It is a tax efficient way to control your post-retirement saving and most importantly allows you to control the pension assets so that your family/dependents will benefit when you pass away.
It allows for a flexible level of income to be taken in retirement subject to a minimum annual withdrawal of 4%, 5% or 6% – depending on age and ARF investment amount and subject to income tax and USC. PRSI can also apply in certain scenarios. The most noted advantage of availing of an ARF pension in retirement is that when you die, the value of your fund passes to your estate. You also have the option to change from your ARF to an annuity i.e. an income for life, considered during retirement financial planning. However, this decision to purchase an annuity is final and cannot be reversed.
Annuities – Guaranteed Pension (Following Retirement)
An annuity is taken out with a life insurance company and is designed to provide you with a guaranteed income for life in retirement. The amount of regular pension income you get depends on your pension fund when you reach retirement, the annuity rate awarded to you by the Life Company, your age and health, male / female and if you want to avail of the ‘add-ons’ that some annuities can provide. You will pay income tax and Universal Social Charge (USC) on the income that you receive.
During retirement financial planning, when making the choice to avail of an annuity, it is important to consider your spouse / family before making any decisions. Getting financial advice is a crucial step in the annuity journey.
An annuity can be a beneficial source of income in retirement for people who want to avoid future potential investment risks. However your annuity income is just for your own lifetime, the money you used to buy the annuity does not go to your dependants on death. Ultimately the annuity dies with you.
Pension Term Assurance
A Pension Term Assurance plan can be an Executive Pension Term or Personal Pension Term policy, depending on your employment structure. Both options provide for a lump sum on death before a fixed future date – normally retirement age. The Executive Pension Term plan will provide a lump sum equivalent to 4 times your salary and an annuity. These policies are a tax efficient method of providing life assurance protection so that your family will continue to avail of the financial support needed in the event of an sudden death.
An individual can take out a term assurance plan under the same eligibility conditions as for Personal / Executive Pensions. An Executive Pension Term Assurance plan is normally paid for by the employer so the premiums usually qualify for corporation tax relief. As these policies are set up under the same criteria & structure as a pension, individual tax relief is available at the marginal rate of tax on any premiums paid under both Executive and Personal Pension Term Assurance arrangements.