Pensions

Typically, we don’t want to hear or even think about the word pension. But remember here at enough we want to turn the tide on how people learn about the things they need to know about. 

Pensions, and particularly getting a pension in Ireland, where we have one of the most generous pension regimes in the world, is something we should all be fully up to speed on. 

The questions people often ask are “how do I calculate my pension” or is there such a thing as a “how much pension will I get calculator” These are valid questions so we have pulled together a team of experts to delve into pensions to answer your questions. 

The problem is not only that pensions are boring, but they are also complicated at the start. That’s because there are lots of different types of pensions out there and finding out which one is right for you is the first step.

Now is the time to get up to speed on your pension knowledge. Leo Varadkar recently announced auto-enrolment will be in place by 2021. What this means is that by 2021 if you aren’t in a pension already, you will be put into one automatically.

This begs the question what are auto enrolment pension contribution rates, (in other words how much will you have to put in) and how do I calculate what I will get from this new pension. 

These are things that will be ironed out over the next few years. What we do know however is that these new pensions will based around the same rules current pensions are based on. In fact here at enough we would imagine it will be the same pensions that will be used when auto enrolment kicks in. We don’t see why they need to re-invent the wheel.

But please, please remember don’t do this alone. After buying a house starting a pension is probably the biggest investment decision you will make in your lifetime. Get it right and you are happy in your old age, get it wrong and its beans on toast. 

So, get stuck into the details from our experts below where they delve into some of the most searched pension topics online...


You pay your stamps, you deserve the benefits. Here Ross talks about the Contributory Pension and how it is applied in Ireland.

Expert Advice from Ross Curran at Curran Financial Services

Why do workers discount the State Pension?

The recent furore about the status of retirees (mostly women) who had their pension income cut due to an arbitrary decision around calculating stamps in 2012 and then did not benefit from the increase in the weekly pension payment this budget, shows that there are major issues in how the Contributory Pension is applied in Ireland.

While it may be too late for many of those already retired, short of continued lobbying, those still in employment must take responsibility for ensuring they maximise their entitlements when they reach retirement age.

As a Retirement Advisor, my first port of call with clients is always the Old Age Pension, irrespective of the value of any personal savings they might have. Securing access to this income, which is owed to you, not gifted (as it’s often framed) is paramount and underpins your financial security for your lifetime.

For some reason I find that people, notably younger clients who see themselves as financially astute, often discount this income entirely from their plans when, in reality, it will likely be the largest single income source they have.

This is doubly true for the generations who are responsible for funding much of their own pensions, and especially for the self-employed.

I feel that there is often an element of embarrassment associated with the entire thing – as if it’s perceived in the same vein as the Dole.

Explaining that the Contributory and Non-Contributory Pensions are very different schemes goes some ways to alleviating this viewpoint, but it is in presenting the actual numbers that we turn most people’s opinion.

The 2018 budget brings the maximum contributory pension rate to approximately €12,500 a year, or €25,000 for a couple.

To retire with a personal pension giving this combined income, guaranteed for life, would require a pot of approximately €500,000, which is probably beyond most people’s capacity to save.

So, you need to find out what your entitlements are.

This means seeing what PRSI contributions you have made in your working life and projecting forward to estimate what you’ll make in future.

Once we know this, you can ring-fence this lifeline in your future plans or, if necessary, make the changes necessary to secure it. Speak to an independent advisor about securing you future today.


When it comes to pensions there are lots of questions to be answered before you can even begin to decide on a pension suitable for your unique needs. 

Let's hear from Paddy McGettigan @ McGettigan Financial Planning

Getting Started with a Pension

Get started as early as you can even if it is only €50 per month. The funds compound and grow tax free due to Irish Pension rules.

€50


Compare to purchasing a rental property, an Investment bond or a deposit account. Significant taxes apply to growth in these investment classes, Irish Pension plans avoid this taxation.

Since the Global Financial crisis, we are all more inquisitive about where we invest and the mechanics around the investment. Parallel to this and in response to this demand much greater transparency is now prevalent in the pricing structure of pension plans.


Can I cash in my Pension in Ireland?

Two key pieces of information are required to answer this query accurately:

  • What type of pension you you have?
  • How old are you?

If you are invested in a PRSA or a Personal Pension Plan the minimum age that you can access the plan is at age 60. If it is an occupational pension scheme you may access the funds from age 50 as long as the trustees of the scheme are agreeable to this.

It is advisable to leave your pension invested and not to withdraw the funds early. The pension grows tax free and will accumulate funds for your retirement. The generous tax relief for pension funding is in place to encourage you to leave the funds until retirement not for early withdrawal.


Funding your Pension

When setting up a pension plan and deciding how to fund it, it shouldn’t be seen as a stand-alone entity or product.

The Pension plan should fit within your overall financial planning. Key blocks in your financial planning are;

  • Tax Efficiency
  • Risk Profile
  • Goals in retirement 
  • Retirement age
  • Other assets which will fund retirement

Fit the Pension plan around these key areas to ensure all your planning is moving in a consistent direction.


When setting up a pension plan and deciding how to fund it, it shouldn’t be seen as a stand-alone entity or product.

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Funding Schemes....What are they?

The first step is to ask someone you trust for a referral to a trusted adviser, failing this check the FPSB.IE or SFPI websites for a Certified Planner close to you.

There are so many options available that it can be daunting to decide where to start. A pension is a simple process. It is a long-term savings plan for your retirement with attractive tax relief built in. 

The key blocks are to have the correct risk profile, sufficient funding, regular clear advice and transparency around the charges.


When we look at investments and pensions, why do we separate the two? Your pension is an investment and one of the best types available thanks to the generous tax reliefs available.

Let's hear from John Furlong @ Steadfast Financial Consulting

What Is The Most Tax Efficient Savings Plan in Ireland?

There would be considerable debate about the answer to the above question, as there is much choice in the world of investments and pensions.

Traditionally we start to save our money where it is accessible, bank accounts, credit unions before we venture into regular savings plans. Last on the list is normally private pension funds, as they are the least understood and therefore avoided.

But are we missing out on anything?................The answer is a resounding yes.

When we look at investments and pensions, why do we separate the two? Your pension is an investment and one of the best types available thanks to the generous tax reliefs available.

Did you know that each contribution to your private pension funds, attract relief at your marginal rate. With so many of us being taxed at 40% (the standard rate threshold is reached at €33,800) this represents a massive reduction on the cost for you to save. Let’s look at simple example below;

pension ireland

The example shows you can invest €6,000.00 per annum into private pension funds and this will only cost you €3,600.00. If you take a different perspective, if you invested €3,600.00 and it grew to €6,000.00 in one year, would you be pleased with the return? I think most people would and this shows the relationship between investments and pensions.

Your private pension funds also grow tax-free, meaning that every bit of growth is added to your fund. This continues until you reach retirement and the more money you can accumulate the more options you have when you decide to stop working. 

The freedom over your money continues after you retire, as you can avail of an ARF pension, in addition to taking a tax-free lump sum of up to 25% of the fund.

ARF Pension

The ARF pension (Approved Retirement Fund), allows you to maintain your private pension funds as an investment and you can withdraw regular and ad hoc amounts from the pot at any time, thereby being fully in control of your retirement and your money. 

You will need to ensure that the amount you are withdrawing from you ARF pension will last into the future, however, the funds will remain invested so the aim is to try and replace some of the money being taken out each year.

If we take our 29 year old and assume they retire at age 60, having made a contribution of 15% of salary and the growth rate each year was 4.7%, they would have accumulated a fund of €502,000.00. You can take a tax-free lump sum of €125,500.00, with the balance of €376,500.00 being invested in an ARF pension.

This combined fund could produce an income of €22,590.00 (4.5%) and it would comfortably last your lifetime, as the investment return assumed of 4.7%, should cover the withdrawal each year. An income withdrawal of €35,000.00 from the ARF pension and investment fund, would last for over 24 years in retirement bring you to age 84. The State Pension would obviously commence at some point, currently 68, reducing the withdrawal amount and therefore ensuring the fund would last even longer. Should you die at any point before you retire the fund passes into your estate and after retirement the value of the ARF pension also passes to your estate, so the funds are never lost to you.

So in answer to the above question.........I believe that the tax reliefs available, the tax-free growth, plus the tax-free lump sum at retirement, makes a pension plan the clear choice as the most tax efficient savings plan, how about you?


So, it’s that time of year again, pension season, as those of us in the industry have come to know it. It’s one of our busiest periods of the year (and at times one of our most hectic). 

Let's hear from Francis Russell @ Roban Financial

Pension Contributions…. Know Your Limits!

As a financial planning brokerage, it’s one of our busiest periods of the year (and at times one of our most hectic). We get all sorts of queries from all walks of life around this period from company employees, self-employed individuals and even accountants. 

When it comes to pension and retirement planning one of the areas that can cause a lot of confusion is pension contributions, specifically pension contribution limits. So, what do you need to know about your limits?

Tax Relief Limits

Pension contributions In Ireland are tax deductible at an individual’s marginal income tax rate. A practical way of explaining this is to use an everyday example.

Dan is an employee at ABC Ltd and he earns €50,000 a year.

This means Dan is paying tax on part of his salary at the higher rate if income tax i.e. 40%.

As his employer has no pension scheme in place for its employees Dan has decided to start paying into Personal Retirement Saving Account which is a type of pension, also known as a PRSA.

Let’s say he pays €5,000 in this year. What this means is that Dan will now pay tax on his salary after deducting his €5,000 pension contribution i.e. he only pays income tax on €45,000.

In effect he has saved himself from paying €2,000 in tax to Revenue. Another way of looking at this is to say that if Dan pays €3,000 of his salary into a pension the taxman will pay in €2,000 too. So, he increases his total wealth by a total of €5,000.

This is one of the reasons why there are pension contribution limits. Revenue don’t want you to avoid payment of tax altogether by paying a large part of all of your salary into a pension, besides that you still need your salary to pay the bills!

So how much can you pay into your pension and claim tax relief? Well that depends on a number of things such as your employment type, your age and your salary.

Firstly, if you’re an employee or self-employed there are age related limits set by Revenue for claiming tax relief on personal pension contributions as follows.

If Dan from the example above was 43 years old he’d be allowed to contribute up to 25% of his salary (€12,500) and claim tax relief on the contributions in a year.

In addition to the percentage limits above there is also a ceiling of €115,000 on the earnings from all sources that may be taken into account.

So even if Dan’s salary jumped to €120,000 next year (lucky Dan) he would only be able to claim tax relief on 25% of €115,000. As he gets older his percentage limit will increase.

One important point to make is that if Dan’s employer decides to make contributions to the PRSA both his and the employers contributions combined are still subject to the same age related and salary limits explained above. One should also bear in mind that limits may be subject to change in the future.

So far I’ve only dealt with individual or personal pension contributions to Personal Pensions and PRSA’s. What about members of Employer Group Pension Schemes or Single Member Company Pensions?

Employer contributions to occupational pension schemes are subject to different limits that relate to your salary, the length of time you’ve been in the employment with the company and the level of the fund, if any, you’ve built up to date. In the vast majority of cases these limits are far higher than those imposed on PRSA and Personal Pension contract. It is often thought that company sponsored pension schemes are the holy grail when it comes to pension funding and retirement planning especially for company owner directors and their families as contributions can be increased beyond the normal individual limits.

Revenue sets limits on the total contributions employers and employees make to company sponsored pension schemes and there are a few rules that must be observed:

  • In general, the maximum pension that you can receive in retirement from an occupational pension scheme is 2/3rds of your final salary. This can vary depending on your length of service with the employer.
  • While the limits for employer contributions are higher in occupational pension schemes there still are limits. Calculating these limits is not straight forward and is complicated. I would advise any employer looking to make pension contribution for an employee in this manner to contact an Independent Financial Planner of Advisor.  

Fund Value Limit

One other limit to be aware of is a limit on the total value of your pension pot. In 2006 the Finance Act introduced a limit on the value of a person’s pension fund which may attract tax relief.

This is known as the Standard Fund Threshold. 

The threshold has been reduced over the years and now stands at €2,000,000. What this means is that anyone can make pension contributions and grow their pension (tax free) up this figure. If you’re lucky enough to have a pension pot larger than this a tax of 40% is charged on the excess on retirement. First world problems, right?


The best advice I can give anyone when navigating their pensions journey, and it is a journey, is to speak to an expert.
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For most people I deal with on a daily basis I get a sense from them that they feel at times that there’s a lot of ambiguity around pension funding and pension contribution limits in Ireland and rules and quirks in this area need to be clarified.


Next up we want to take a quick look at Defined Contribution Pensions. We asked expert Financial Advisor Gerard O'Brien for his opinions..

Let's hear from Gerard O'Brien at Heritage Wealth Financial Planning

The Advantages of a Defined Contribution Pension Scheme

A defined contribution pension scheme (DC) is an employer sponsored pension scheme, whereby your contributions (as the employee) are added to any of your employer’s contributions – the aim of this is to provide you with a pension income in retirement. When your employment stops at retirement (say, if you decide to stop working at age 65), you will need to replace that lost income with a new source of income.  In most cases the replacement source of income is your own pension fund, built up over the years. 

This is known as the ‘accumulation phase’ and in short, you are building your pension fund between now and your retirement date to fund your future income. 

There are many advantages associated with defined contribution pension schemes, such as tax-free growth of investment returns within your pension, tax relief on your contributions and the added bonus in many cases of your employer adding in say 5% / 10% of your income into your fund. The latter can be seen as a “free pay rise”, as you are not taxed on the employer contributions into your fund. 

It is therefore vitally important to understand that the value of your defined contribution pension fund (your DC fund) at your retirement date (65, in this example) depends on the amount of contributions you and your employer have paid into the fund over the preceding years, and the growth on your funds pre-retirement. 

What happens when you reach your retirement age?

So, having built your retirement fund over the years, you now need to start using those funds to replace your lost employment income.  This is known as the ‘decumulation phase’.

At retirement everybody has the option of taking a tax-free lump sum.  The level of tax-free lump sum you can take will depend on the value of your pension fund.  So, for example, if you have built up a defined contribution pension fund value of €400,000 over the years, you might be able to take a tax free lump sum of €100,000 at retirement, you then use the remaining €300,000 in your fund to provide you with an income for the remainder of your life. 

Based on a return of, say, 4% net on your €300,000 pension fund; this would equate to an annual income of €12,000 gross of tax per annum. You then need to consider how this new income amount equates to your lost employment income.

In summary, defined contribution pension schemes are an essential part of your income in retirement replacement strategy. Detailed financial planning advice should be sought as to which plan suits you best.


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