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One Man, No Man

One Man, No Man

One Man, No Man

We have had quite a week last week in pension land. Here at Pension Planners, we are all about making a complicated thing simple. What happened last week has been another measure that has made a simple thing complicated. There is a lot of uncertainty and unanswered questions.

 

So, what happened?

The Pensions Authority have put a halt to Executive Pensions. Access to these ‘one-man schemes’ have been suspended due to the threat of prosecution. This has resulted in business owners being frozen out of the pensions market after the regulator threatened to prosecute those who access such plans.

 

What were the one-member schemes?

 

A one-member scheme had allowed for a wide range of investments and provided tax relief on a higher amount than what would have been possible under a standard occupational pension arrangement. It also allowed for easily adjusted contributions to take into account the potential business highs and lows.

 

What has now changed?

The Pensions Authority are imposing an EU regulation (IORPS 2) which was aimed at making corporate pensions easier to manage from a compliance point of view. We have no problem simplifying corporate pensions in Ireland, we do have an issue with small business owners having less access to retirement funding.

I feel this law was not intended to impact business owners; it was intended to clean up the big occupations schemes which are a pension minefield.  Although a new private retirement saving account (PRSA) that would have the same level of flexibility has not yet been put into place. It’s the SME/Business Owner that’s being hit again!

 

 

What impact will this have?

This has impacted the market and has already resulted in some providers suspending new one-member schemes. This is detrimental to the consumers of which very many had no other realistic alternatives for their pension savings All five of the insurers in the state (Irish life, Aviva, Zurich Standard Life and New Ireland) that were giving access to single-member pension schemes have now all suspended opening any new plans.

The pension authority adopted a hard-line approach, making it clear they would be intending to prosecute trustees of such schemes issued after the deadline. The pension authority notes there was already derogation to 2026 for existing holders of such schemes to comply with the new rules.

 

What options are now out there?

 

We feel a solution needs to be found that is reasonable. There are immediate solutions, Pensions are technical and complicated. We help make what can be a complicated thing simple. Our team here at Pension Planners talk in simple to understand language about pensions and your options so that you have the right information to make choices that are best for you. Sometimes it’s about having someone you can trust helping you when you need it most. Feel free to go us a shout at any time and we’ll have a no-obligation chat about your choices and how to make them.

 

 

 

 

PRSA vs Personal Pension Plan

PRSA vs Personal Pension Plan

Do you like flexibility with your pension? Do you like having choice regarding where and how your pension is invested? Would you find it comforting to know you can change fund or provider at any time? Well, these are all the attributes of a Personal Retirement Savings Account (PRSA). They are also all the attributes of a personal pension plan. So, we haven’t gotten very far in deciphering which is the right one for you! These are both excellent and popular options in the world of pensions. There are, however, some areas where they differ.

 

Eligibility: Everyone can take out a PRSA, even those not working (but you won’t get any tax relief if you’re not paying any tax!). Also, those part of their employer pension scheme can take out a PRSA-AVC (additional voluntary contributions) – the logic of doing so can sometimes be debatable.

 

On the other hand, personal pension plans are only available to those who have (or have had in the past) relevant earnings from either (1) a non-pensionable employment i.e. a company that does not have an occupational pension scheme available to its employees, or (2) a self-employed trade or profession.

 

Where applicable, you can contribute to both a PRSA and personal pension plan in any one tax-year.

 

Early access: Normal access for both a PRSA and a personal pension plan are age 60 but with a PRSA there is the option of earlier access from age 50 if you have left employed service.

Fund choice: While both options provide a wide choice of funds to choose from, the personal pension plan does have a trump card in the form of a Self-Directed Investment Option (SDIO) platform. This platform is only available with limited providers but allows you access to alternative investment options that may be more suitable to your risk profile and pension goals.

If you do need some advice in this area, then please feel free to talk to a member of our team.

Found this information helpful? Then make sure you follow us on social media for more!

Do you want a Tax-Free Lump Sum of Cash?!

Do you want a Tax-Free Lump Sum of Cash?!

Tax – Free Lump Sum Cash

Ah the Golden Handshake that is tax-free cash at retirement, you can’t beat it. No literally, you can’t beat it. For higher tax rate payers, if I told you that the bank across the road is giving a 66% return on your money overnight, would you hesitate to race over and deposit money? This is effectively how the tax-free cash part of your retirement fund works. Specific to this portion of your pot, you will have received up to 40% tax relief on your contributions into your pension fund and now you get 100% of it back, no strings attached.

The key to planning this element of your retirement is to know your tax-free cash limits and whether or not additional funding pre-retirement through AVC’s is recommended.

This is dependent on a number a factors such as years of service, final salary, and revenue limits to name a few.  Contact our friendly team to understand your tax-free limits.

 

What is an ARF?

If you are nearing retirement, no doubt you have heard “ARF” said and shouted at you numerous times. It is not that your friend or colleague has a seal-like cough, they are in fact referring to a popular retirement option known as an approved retirement fund (ARF).

When you reach retirement age you will be able to draw-down a certain amount of your pension fund as tax-free cash, which is nice. You then have some options with where to put the balance, one of which is the ARF option. Think of it as a continuation of your pension fund to date i.e., it remains invested as it was before, and you can (and should) control where and how it is invested going forward. However, this time, you will have access to your pot of money. You can withdraw as much money from your ARF as you like annually but take caution as any withdrawals are subject to income tax at your marginal rate so you can (and should) be as tax efficient as possible when withdrawing funds. There are some rules surrounding (1) eligibility for ARF’s and (2) withdrawals from an ARF:

(1) Eligibility for an ARF

There is so much change in the land of pensions, is it any wonder people get confused and find pensions a complex area of financial planning. There has been changes recently in legislation, in the past you had to have a guaranteed minimum income of €12,700 before you could access an ARF.

You had to invest the first €63,500 of your pension fund into an approved minimum retirement fund (AMRF) The balance of your funds would then go into the ARF.

This requirement is now gone, you can access the ARF without this unnecessary rule. You are in control of the funds and there is no restriction to entry. What we need to be is disciplined in how we draw down the ARF, this is where guidance and a good retirement planner come into play. Building a strategy is key.

Some pensions will have 2 options regarding their tax-free cash entitlement. Only one of these options allows you to invest the balance into an ARF.

(2) Withdrawals from an ARF

You must withdraw a minimum of 4% per annum up to age 71 and 5% per annum thereafter. These withdrawals are subject to income tax at your marginal rate.

If you do need some advice on this area, then please feel free to talk to a member of our team

Found this information helpful? Then make sure you follow us on social media for more!

 

Want to access your pension early? Or are you trying to find your old pension? 

Want to access your pension early? Or are you trying to find your old pension? 

What if I want to access my pension early? 

Early Access to your Pension 

What if I told you that some pension structures allow you to access the fund from age 50, while others make you wait to age 65. I know which one I would rather! It’s not saying you must access the fund from age 50, it’s about having the choice to do so.  

Before we get too excited, early access does require you to have left the pension scheme, so it is only applicable to those who have left a pension scheme, typically a previous employer pension scheme, or those who are actually at their retirement age and are leaving their current employer pension scheme.  

While the complexities of Irish pensions and the Revenue rules that oversee them may seem overwhelming for some, they can actually be quite an advantage if you know how to navigate through them. Take a look at the table below outlining access rules as they stand: 

  • Current Occupational Pension Scheme – age 65 
  • Previous Occupational Pension Scheme – age 50 
  • Personal Retirement Bond – age 50 
  • PRSA – age 60 (earlier if leaving employed service – age 50) 
  • Personal Pension Plan – age 60  

Take caution when considering early access to your pension. The earlier you access it, the less time it has to grow in value and the higher the risk of “bomb-out” i.e., running out of money! 

 

Can I find my old pension? 

The short answer is yes. Regarding should you find your old pension? The short answer is also yes. The key to good pension planning is control.  

One option is to contact your previous employer, find out who the current pension provider and trustees are (they can change quite often), contact the current trustees of the old pension scheme, and there you have it, simple! Alternatively, you can sign a letter of authority which allows us to do all the hunting down for you and come back to you with the information.  

If you do need some advice on this area, then please feel free to talk to a member of our team 

Found this information helpful? Then make sure you follow us on social media for more! 

 

Stay tuned for part 2 of our helpful pension tips! 

 

 

 

 

The results are in – You cast your vote on the best time to start a pension

The results are in – You cast your vote on the best time to start a pension

The results are in – You cast your vote on the best time to start a pension

In our recent LinkedIn poll, we asked: “when was the best time to start a pension?” The results showed that respondents felt that this was between the ages of 20-30.

At Pension Planners we feel the best time to start a pension is early career, the next best time is right now. No time like the present. Starting a pension at this early career stage between your 20s and 30s is an excellent choice!

In general, the best practice is to start as early as possible. The earlier you start the better. Starting your pension at the earliest opportunity will enable you to have more time to grow your pension fund over time. The basis of pensions is that the longer you leave your money in a fund the more you will have when it comes time for you to retire.

Although the markets can go up and down over the years, being in the market for a longer period of time will often put you in a better position to overcome the low times and ‘weather the storm.’

Many people are entering the workforce in their 20s and consider their 20s and 30s as their early career stage. The first pension tip is, if your employer offers you a pension, you should take it. As some employers will match your pension contributions, this is a great benefit! You could have your pension contributions deducted at source, it’s all about keeping it affordable, it could be set as low as just 5%, Add in the employer contribution, then over time even a small pension contributions coming out of your wage will add up in the long run. Also, if your pension contributions are set as a percentage of your salary, then as your salary increases overtime so will your contributions. It’s all relative. Last, but not least if you are in your 20’s you can get tax relief at your marginal rate, up to 15% of your net relevant earnings.  This means that you are saving on your tax bill and adding to your pension pot at the same time – Big Benefit.

Are you in your 40s and 50s?

If so, then pensions are becoming more of interest as you think about the life you really want in retirement.

If at this point you haven’t started your pension there is no need to panic, there is time. Make sure your contribution is affordable but keep it meaningful.

The likelihood is that you are now in a higher tax bracket than at the start of your career and you could be able to make a higher level of contribution to your pension plan. Again, this means you can save on your tax bill while growing your pension pot so that you can really enjoy your retirement!

It is important to remember that the state pension may not be reliable in the future, with an aging population we cannot assume the state pension will be at the current rate. Having a retirement income of our own is more important than ever before.  The media call this the pension time bomb.

If you are in your 50s or older? 

If you are in your 50s or above and have a pension, you might want to consider what your investment strategy is and potentially be switching your pension funds from riskier funds to ones that are more secure when heading towards retirement. Some do like to keep invested in equities, taking advice is key along your pension journey.

If you are approaching retirement age, and you feel like you would like to boost your retirement, a way to do this could be by making additional voluntary contributions (AVCs).

Nowadays, there have been changes from the traditional age of retirement, typically 60/65 and moving towards the age of 66 (inline with the OAP) or higher into the 70s, yet some people will want to retire before this. For early retirement to be a viable option for you, then you should ensure that you have the correct pension plan in place that can allow this.

Another valuable benefit that should be mentioned is if you are over 60, then tax relief goes up to 40 per cent of your net relevant earnings (subject to a maximum of €115,000 net relevant earnings)

Most importantly, regardless of what stage of your career you are at it is good to have the correct pension plan in place. This is where we can help you. Here at Pension Planners, we are here to help you answer your pension questions and to provide a solution to all your pension challenges. We make complicated things simple! Book in for a chat today!

 

 

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