The importance of financial advice when approaching retirement
- Making the wrong decisions in the lead up to your retirement could negatively effect your retirement income & your tax free lump sum.
- You have some pre-retirement options that could enhance your retirement package but you need to act before you retire.
- While you may have been saving for your retirement with one of the large pension providers (e.g. Irish Life, Aviva, Zurich, New Ireland etc) they may not offer you the best pension plan post retirement. It’s important to compare the market to see if you can get a better deal than your current provider is offering – because it can effect your income for the rest of your life.
Options at retirement:
While not everyone has the same options at retirement, to keep this simple, typically a retiree who has built up a private pension fund can do the following:
- Claim a tax free lump sum.
- Option to take an additional lump sum and pay tax on it.
- Choose to invest the balance of your fund in an Annuity or ARF
Tax Free Lump Sum
Private pensions: (i.e. Personal Pension Plans and PRSA’s that are not linked to a company scheme)
- 25% of your fund balance can be claimed as a tax free lump sum.
- Maximum lifetime limit of €200,000.
Occupational Pensions Scheme / Company Pension,
- 25% of your fund balance or up to 1.5 times your final salary.
- Maximum lifetime limit of €200,000.
- The size of your lump sum will depend on your years of service under that scheme & by the scheme rules.
- Due to scheme rules & years of service, working this out can be a little more complicated, so it’s probably best to have a chat with one of our Pension experts, who can calculate this for you.
Taxable Lump Sum
- You may have an option to take an additional lump sum and pay tax on it – if your fund is big enough.
- Currently, you can withdraw up to €300,000 as a taxable lump sum and pay tax at 20%.
Choose your pension type
There are three options for the remaining funds, after you take your lump sum:
- Buy an Annuity
- Invest in an Approved Retirement Fund (ARF)
- An annuity is an income for life. You use the balance of your pension fund to buy a guaranteed income for life from a pension provider.
- Once you purchase the annuity, you’ll get an income until you die but you won’t have access to the pension fund anymore.
Approved Retirement Fund (ARF)
- An Approved Retirement Fund continues to invest your money after you retire.
- You draw an income from the fund and you can increase or decrease the amount you withdraw per year depending on your requirements (subject to a minimum of 4% of the fund value per year).
- When you die, any remaining funds in your ARF are left to your estate.
While these options have their own merits, there are some downsides for each that you need to also consider. Our qualified pension experts can help you weigh up the pro’s and con’s of each option.
Should I make a Last Minute contribution to my pension?
The answer in most cases is yes.
If you are very close to retirement it may be your last chance to place some money in your personal or occupational pension scheme while you are still employed.
By doing this you can still avail of any tax relief on the contribution(s) made between 20% & 40%.
How can you do you this?
If you are a member of an Occupational Pension Scheme you can set up an AVC PRSA and pay a monthly or yearly contribution into this. AVC stands for Additional Voluntary Contribution.
If you are not a member of an Occupational Pension Scheme, we can set up a new pension plan for you to facilitate this option.
If this sounds like you, then don’t miss out on your chance to add to your pension fund and ultimately to your Tax Free Cash, speak to one our Pension Experts today so we can help you with this
Book a Pre Retirement Financial Review:
- Have a chat with an Irish Pensions advisor – call (01)8570655, fill in the form below to arrange a call, or start a conversation using our Online Chat (click the icon on the bottom right of the screen).
- The advisor will ask you some simple questions to identify what you need and how your money should be invested.
- They will compare pension providers and fund managers to find the most suitable pension for you.