Pension Planning Overview

Pensions are a very tax efficient structure to save for your retirement for a number of reasons. Your employer can contribute to a fund on your behalf.You get tax relief on your personal contributions. All contributions benefit from tax free compounding growth within the pension structure. At retirement a portion of your fund can then be taken tax free, with the balance to be used to provide an income in retirement and/or be drawn down as tax efficiently as possible. Bearing all of this in mind, the earlier you start funding, the greater your fund at retirement will be, as you benefit from compounding interest for a longer period of time.

Pensions are confusing, as there are a number of different types of pension vehicles that are used to accumulate a fund to provide a pension in retirement. They are namely:

The correct one for you to use will depend on where your earnings come from and your specific situation. So make life easier for you and the ones you love call us today, and let us setup your financial plans for the future.

Why Peavoy Financial Planning for Pensions?

One of the key benefits of working with Peavoy Financial Planning is, all pension clients will deal with the Business Owner when conducting their business. You will not be dealing with a different adviser each time you visit.

David Peavoy has over 20 years’ experience in the pensions arena, having previously held the position of Corporate pensions Manager for Canada Life Assurance in Dublin. This role incorporated the management of some of the largest pensions schemes in the country. With the complexities of the pension arena, experience and knowledge are key when seeking an adviser to work with. At Peavoy Financial Planning we are confident we can provide you with this. We aim to educate you on your pension possibilities, the scope you have to make the maximum use of the tax efficiencies within the pension system and then assist you to put a plan in place to help you achieve the best possible outcome for your specific situation

Personal Pension Plans

Personal pension plans, also known as Retirement Annuity Contracts are flexible individual pension plans for self -employed individuals (assessable to income tax under Schedule D) and for those in non- pensionable employment (assessable to income tax under Schedule E). You decide how much you wish to contribute and you can stop and restart your pension contributions at any time. Tax relief is allowable against your pension contributions within revenue limits, thereby reducing your income tax liability.

Contributions to a Personal pension can be invested in a traditional unit linked fund operated through one of the pension providers or individuals can choose to self-manage their Personal pension in a Self-Administered or Self Directed Personal pension arrangement.

Personal Retirement Savings Account (PRSA)

PRSAs are individual pension arrangements that can be taken out with a PRSA provider to which the individual and/or his or her employer can contribute. Tax relief is allowable against your personal contributions within revenue limits, thereby reducing your income tax liability. PRSAs are portable retirement plans so you have the flexibility of taking your pension plan with you if you change employment.

Contributions into a PRSA plans can be invested in a traditional unit linked fund operated through one of the PRSA providers or individuals can choose to self-manage their PRSA in a Self-Administered PRSA arrangement.

Executive Pensions

Executive Pensions are one person pension arrangements which are normally used to accumulate the pension funds for company directors. They can however be used by employers to fund the pension of any employee.

An Employer can make contributions into an Executive pension plan along with your own individual contributions. This makes Executive Pensions an extremely tax efficient way for Company Directors to extract funds from their company through Employer Pension Funding. Contributions made by an Employer to an Executive Pension for a company director avoid Income Tax, PRSI and USC. The company gets Corporation Tax Relief on the contributions it pays. There is no BIK applicable.

Contributions into an Executive Pension can be invested in a traditional unit linked fund operated through one of the pension providers or individuals can choose to self-manage their Executive Pension in a Self-Administered EPP arrangement.

In addition, there are more options available at retirement, in relation to tax free lump sum by using an Executive Pension rather than a Personal Pension as the company director has the option of using the Salary and Service formulae as well as the traditional option.

Group Pension Scheme / Company Pension Scheme

These are normally put in place by a company for its employees. The company sets up a Defined Contribution Group Pension Scheme which allows the employer and their employees to contribute to the pension plan. The contributions are usually based on a percentage of salary, with corporation tax relief allowed on the employer contributions (in the hands of the employer) and income tax relief on the employee pension contributions (in the hands of the employee) within revenue limits. Contributions are usually deducted straight from your salary which allows the tax relief to be given at source.

In addition, there are more options available at retirement in relation to tax free lump sum, by funding through a Company Pension rather than a PRSA or Personal Pension as the member has the option of using the Salary and Service formulae as well as the traditional option.

Additional Voluntary Contributions (AVCs)

Additional Voluntary Contributions are extra contributions that you can make alongside your existing pension plan to increase your pension fund further.

If you have an existing pension with your employment you can make AVCs through that structure OR alternatively you can diversify your contribution through a PRSA AVC.  AVCs are ideal for those who wish to catch up on their pension funding, if they started their pension late or took a break from pension funding or are nearing retirement and they want to boost their pension fund now.

It can be advantageous for many Public Sector workers to make AVC’s, as there is often a difference in the benefits they get from their Main Superannuation scheme and the Revenue Maximum Allowable benefits. Again the earlier you start this the better. Tax relief is also allowed on AVC contributions, within revenue limits.

Retirement Bond / Buy-Out Bond

When you change job and leave your employment it is important for you to ask for your Leaving Service Options in relation to any pension fund you have built up within the Company Pension Scheme. The next thing you should do is seek advice from a good pension adviser as you will have a number of options to choose from, that can often be quite confusing. It is very important at this time that you make the right decision with the pension fund you have accumulated to ensure you keep all of your options open for future access and drawdown.

One of the options you will have, is to transfer your fund to a Retirement Bond. A Retirement Bond contract has a number of advantages that you may not have with other options, however it is important still that you seek advice, as each situation is specific. These advantage include

  • The pension is now in your own name and control and not in your Old Employers Pension
  • You have control over when you access benefits and you do not need your old employers permission to do so
  • You can possibly access your benefits from age 50 onwards
  • You do not have to retire from your subsequent employment to access benefits
  • The need for you to stay in touch with your previous employer is removed
  • You have control over where the funds are invested
  • The Retirement Bond is a preserved benefit so on death the full value of your retirement bond would be paid to your estate

In the event that you have a paid up pension benefit from a company in Ireland or the UK, it is very important, to find out where it is and understand what options are available to you. At Peavoy Financial Planning we help our clients in Laois and all around the country, to familiarize themselves with the options that are available to them in relation to their pensions from their old employments. We would love to help you also. Contact us, to help you get your options and explain them to you.

Pension Contributions and Income Tax Relief

In general an individual can get income tax relief on their own pension contributions up to an annual limit related to their age and net relevant earnings subject to an earnings cap of €115,000. However in the case of a PRSA contract, the employer and employee contributions cannot exceed the limits below.

Age% Net Relevant Earnings
Under 3015%
30-4020%
40-4925%
50-5430%
55-5935%
60 and over40%

Income tax relief is given at the individual’s marginal rate. There is no relief against PRSI or the USC.

We look forward to bringing all of experience and knowledge to bear for you
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