Pensions

Could you survive on €223.30 a week after you have reached the age of 65? This is the current maximum single person�s weekly rate of state pension payable (PRSI contributor). Recent surveys have shown only about 50% of the workforce in Ireland have supplementary pension cover in addition to the State pension. Apart from the value of the house, few people are able to save much during their work lives. The erosion of the value of the State pension combined with greater life expectancy highlights the importance of pension planning.

The Central Statistics Office estimates that a man aged 65 can expect to live a further 14 years while a woman aged 65 can expect to live another 17 years.

The longer you delay in starting a pension, the more that will have to be funded each month to ensure an adequate income on retirement.

Source - Standard Life

Note: The costs shown are recommended costs and are for illustration purposes and are not guaranteed. They assume an investment return before retirement of 6% per annum and inflation of 3% per annum. Actual returns could be higher or lower and will depend on the performance of the underlying investments.

The figures used are based on an annual management charge of 1%. Payments are assumed to be invested in investment - linked funds. The cost of all charges and expenses is included. The monthly retirement income is based on a single life annuity payable in advance, guaranteed for 5 years, increasing by 3% each year. The annuity interest rate assumed is 5%. Contributions are assumed to increase by 3% each year.

This is a pension scheme generated by a company for the benefit for employees.

The company pension is set up under a trust by an employer and has to be approved by the Revenue. A  Trust is an arrangement under which a person or group of people known as Trustees hold and look after property on behalf of others known as beneficiaries.

There are two types of company pension plan:

• Defined Benefit Plans provide a set level of pension at retirement, the amount of which normally depends on your service and your earnings at retirement.
• Defined Contribution Plans where your own contributions and your employerâ�™s contributions are both invested and the proceeds used to buy a pension at retirement.

Tax Advantages
There is a number of attractive tax advantages associated with a company pension Plan:

• Contributions are invested in a Tax Exempt Fund
• Tax Free Lump Sum at Retirement
• Full tax relief on contributions
         - Employer - corporation tax relief 12.5%
         - Employee - income tax relief  at 20% / 41%
• Additional 6% PRSI relief for employee
• Additional 10.75% PRSI relief for employer if employee contributions are deducted from salary
• Employee can claim tax relief of up to 40% of earnings depending on age

Contributing to a Company Pension Plan
Legislation demands that employers must contribute on their employee�s behalf however; there are a choice on how to contribute.

• Regular contributions
• Single contributions
• Combination of both

You must remember that you can only claim tax relief within the limits set by the Revenue. Regular contributions by an employee can be deducted from his/her gross salary. The salary net of the contribution is then subject to income tax and PRSI. In this way the tax relief is immediate or �at source�.

Tax relief available on employee contributions is as follows:

1.	<  30	15% of earnings
2.	30 - 39	20% of earnings
3.	40 - 49Â	25% of earnings
4.	50 - 54	30% of earnings
5.	55 - 59	35% of earnings
6.	60 Plus	40% of earnings

Note: Subject to earnings cap of €275,239

A PRSA is a new type of personal pension contract introduced in 2003. It is a contract between an individual and an authorised PRSA provider. It is a defined contribution plan.

Types of PRSAs
There are two types of PRSA contract:

• A Standard PRSA is a contract that has a maximum charge of 5% on the contributions paid and 1% per annum on the assets under management. Investments are only allowed in pooled funds which include unit trusts and life company unit funds.
• A Non-Standard PRSA is a contract that does not have maximum limits on charges and/or allows investments in funds other than pooled funds. Charges may not be expressed as flat amounts and can only be charged as a percentage of contributions or fund value.

Who can take out a PRSA?
Employees, the self-employed, homemakers, carers and the unemployed - in fact every adult under age 75 may take out a PRSA.  The relevant legislation does not state a minimum age however, in practice; this may be imposed by contract law. Importantly, unlike Personal Pension Plans, there is no requirement to have taxable earnings in order to pay contributions. 

Employer Obligations
Employers who do not operate a pensions scheme are obliged to give at least one standard PRSA to their staff, however, they are not obliged to contribute to the PRSA.

Tax Advantages

• Tax relief is usually available at your highest personal rate of tax . The limits for tax relief are set as a percentage of your net relevant earnings in a tax year. The percentages are age related and they are as follows:
• PRSAâ�™s are a very tax efficient method of funding for retirement, as tax relief is available to PRSA contributors who have taxable earnings from a trade, profession or employment

E Clients can get relief up to certain limits:

1.	<  30	15% of earnings
2.	30 - 39	20% of earnings
3.	40 - 49	25% of earnings
4.	50 - 54	30% of earnings
5.	55 - 59	35% of earnings
6.	60 Plus	40% of earnings

Note: Subject to earnings cap of €275,239

Making Contributions
Contributions can be made by an individual and/or by an employer. However, an employer is not obliged to contribute.
Employers must provide access to a Standard PRSA through salary deduction unless they already have a pension scheme for all their employees.

Additional Voluntary Contributions �AVCs�
AVCs are contributions that a member makes to increase retirement benefits. AVCs are only permitted if the rules of the particular plan permit AVCs to be made. If the rules do not permit AVCs to be made then a member has the right from 15 September 2003 to pay AVCs to a Personal Savings Retirement Account (PRSA).

Personal Pension Plans are designed to cater for pension planning for the self employed or employed in non-pension able employment. Contributions made to a personal pension plan are exempt from tax at the persons highest rate of tax.

Tax Advantages
Tax relief is usually available at your highest personal rate of tax. The limits for tax relief are set as percentage of your net relevant earnings in a tax year. The percentages are age related and they are as follows:

Clients can get relief up to certain limits:

1.	<  30	15% of earnings
2.	30 - 39	20% of earnings
3.	40 - 49	25% of earnings
4.	50 - 54	30% of earnings
5.	55 - 59	35% of earnings
6.	60 Plus	40% of earnings

Note: Subject to earnings cap of €275,239