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Introduction

What options are available to provide for retirement?

Subject to eligibility, there are a variety of different retirement plans to help you provide for your retirement. These include:

Personal Pension Plans

A Personal Pension Plan is an option for people who are taxed under schedule D (self-employed) or who are employees taxed under Schedule E (PAYE) and do not participate in a retirement scheme provided by their employer. The individual makes the contributions themselves and claims tax relief against relevant earnings assessable to Irish tax.

Tax relief on personal pensions is allowed on contributions up to certain levels related to your age and earnings shown in the table below. Specifically, your income, for taxation purposes, is defined as net relevant earnings. It includes earnings from professions, trades and non pensionable employment less capital allowances, losses and certain charges. Income in excess of €275,239 will not qualify for tax relief. There are some specified jobs such as certain sports related jobs where tax relief is available at 30% per year regardless of age.

 

% of your net relevant earnings
which qualify for tax relief
Under 30 years old 15%
30 to 39 years old 20%
40 to 49 years old 25%
50 to 54 years old 30%
55 to 59 years old 35%
60 years and over 40%


If you cease to have income which qualifies then you will no longer receive tax relief on contributions to your personal pension plan and you should reconsider your retirement options. If you expect to pay no further premiums then your policy can be made paid up which means your retirement fund continues to be invested and have charges deducted until you retire and access your fund.

With a personal pension plan you can decide to take your retirement benefits at any time between the ages of 60 and 75. However in some cases, e.g. if you were permanently unable to work, the Revenue Commissioners may allow you to retire before age 60. People in some specified occupations, including certain sports people, are allowed to retire early without having to be in ill health.

Executive Pension Plans

This type of pension plan is generally established by employers for company directors or senior employees remunerated by salary or fees chargeable to income tax under Schedule E (PAYE). An executive pension scheme allows the employer to provide benefits in addition to employee contributions so that a level of retirement income may be targeted at a significant replacement level relevant to pre retirement remuneration.

The maximum benefit which may be funded is a replacement income at normal retirement age of 2/3rds of final remuneration. In addition, payable upon your death, your spouses pension may be provided for up to 100% of your pension. All pensions may be increased in line with the Consumer Price Index (CPI) to protect against inflation. The annual cost of providing this executive style retirement package may be allowed as a business expense incurred by the employer. Your pension advisor will advise you on your personal circumstances regarding your maximum contribution levels.

Generally benefits held with previous executive pension plans may be transferred to your new plan.

Group Pension Schemes

This type of pension is for people in employment and taxed under Schedule E (PAYE) where the employer is willing to make a contribution. Revenue rules require that your employer must pay a meaningful contribution of the total premiums, normally 10%, into your group pension scheme. In many cases, the employee is required to contribute to the pension also. A group pension scheme is established by your employer and trustees are appointed to manage the benefits on your behalf.

If you leave your employer before your normal retirement age and you have been in the group pension for at least two years, you have a right to the total value of your pension fund.

You then have 3 options:

  • Leave it invested in your former employers group scheme until you retire
  • Transfer it to the group scheme of your new employer
  • Transfer it into your own retirement bond or PRSA subject to certain conditions.

Personal Retirement Savings Accounts

There is another type of pension plan to which you can have access, known as a Personal Retirement Savings Account (PRSA). Full details of the Canada Life PRSA are contained in the brochure “Your Canada Life PRSA”. This brochure may be obtained by contacting your financial advisor.

Additional Voluntary Contributions (AVCs)

If you are included in a group pension scheme or executive pension plan you can decide to make extra payments yourself in order to enhance your benefits at retirement. Once you take the benefits from your main scheme you also access your AVC funds. AVC funds provide additional options at retirement in conjunction with group pension scheme benefits. AVC contributions may also be made to PRSA contracts. These are widely known as PRSA AVCs.

Retirement Bonds

When you leave employment with a right to future retirement benefits, the funds to which you are entitled may be transferred from the pension scheme of your former employer into the retirement bond. A retirement bond is a single premium policy provided by an assurance company.

The bond will be invested by the assurance company and the proceeds will be used at retirement to purchase retirement benefits. Your benefits need not be taken at the same time as benefits earned under a subsequent pension scheme. Once the bond is taken out, the retirement scheme of your former employer has no control over the funds held in it.



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