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Retirement Planning in Ireland: Your Comprehensive Guide

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Planning for retirement is a significant life milestone, and ensuring a financially secure and comfortable retirement requires careful consideration and informed decision-making. 

This guide will provide you with comprehensive knowledge to help you navigate the complexities of retirement planning and pensions

Whether you’re just starting to think about retirement or are already well into your retirement journey, this guide aims to empower you with the knowledge needed to make informed decisions and create a retirement plan that aligns with your unique financial goals and expectations. 

Why should I start a private pension?

Having a private pension in Ireland is crucial for several reasons, including ensuring a comfortable retirement or maintaining your current lifestyle. Private pensions are also important for:

Supplementing State Pension

Although the State Pension provides retirees with important financial support, it might not be sufficient to maintain your standard of living or cover all your financial needs during retirement. 

Consider your bills and expenses you might have during retirement and weigh whether relying solely on the State Pension, which stands at €265 per week as of January 2023, will be enough for your financial security while keeping in mind that you might also like to have a nice standard of living during retirement.

Private pensions bridge the gap between state pensions and financial needs, protect against inflation, and provide peace of mind. They also enable legacy planning, ensuring financial support for loved ones.

Tax benefits

Contributing to a private pension can lead to substantial tax relief, with individuals potentially receiving tax relief of up to 40% on their contributions. This is one of only two financial products that the government will actually pay towards you, the other is income protection.

Additional Benefits

There are several reasons you should start your private pension, such as the possibility of retiring early. 

To learn more about other key benefits of having a private pension, read our article, 9 Reasons to Have a Private Pension in Ireland.

When is the best time to start a pension?

The best time to start a pension is right now. Delaying this crucial financial decision can significantly impact your retirement savings.

Starting as early as possible allows your investments to grow over time, potentially providing you with a more substantial pension fund when you retire.

The power of compound interest and time is on your side, making today the best moment to begin securing your financial future in preparation for retirement.

Explore this graph showing estimated funds at ages 25, 35, and 45.

Why start your pension early? - True Wealth

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Strategies for retirement planning at each age

Navigating the world of pensions can be a daunting task, as the landscape varies depending on the stage you find yourself in on your pension journey. 

Whether you are just beginning to contribute to a pension fund, nearing retirement, or somewhere in between, each stage brings its own set of challenges and opportunities. 

It’s crucial to approach the process with diligence and seek guidance from our financial advisors at True Wealth, ensuring that your pension strategy aligns with your unique financial situation and goals.

At what stage of your retirement journey are you?

Explore strategies for each stage of life by clicking on the images below.

To access personalised guidance and tips tailored to your current life stage, get in touch with one of our financial advisors at True Wealth.

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Types of Private Pensions in Ireland

There are two main types of pensions in Ireland:

Occupational Pension

Provided by your employer, an occupational pension scheme allows you to save for retirement through contributions from both you and your employer.

Occupational pensions bring several advantages to employees and employers alike. 

They offer tax-efficient retirement savings for employees while accelerating pension growth through employer contributions, rather than just relying on the employee’s own contributions. 

This essentially provides free money for your retirement fund.

Types of occupational pensions

Defined benefit 

A Defined Benefit (DB) pension outlines the precise retirement benefit an individual will receive. This determination considers variables like an employee’s years of service and their salary, which in turn determines the predetermined pension amount and/or lump sum that will be disbursed upon retirement.

Defined contribution 

For Defined Contribution (DC) pensions, the amounts available for benefits at retirement or leaving service depend on the value of the investment fund accumulated for the member, and there is no guarantee of any minimum benefit. 

Most funded occupational pension schemes and all personal pensions are defined contribution.

Difference between defined contribution and defined benefit

The main difference between a Defined Benefit (DB) pension scheme and a Defined Contribution (DC) pension scheme lies in the guarantee of a set income in the former, while the latter depends on variables like your pension contributions and the performance of the fund.

Personal Pension

A personal pension, also known as a private pension, is a retirement savings plan you set up independently. You have control over your contributions and investment choices. 

Personal pensions are individual savings contracts created to deliver retirement benefits. These pensions include various options, such as a Personal Retirement Savings Account (PRSA), and Personal Retirement Bonds.

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What is a PRSA pension?

A PRSA (Personal Retirement Savings Account) is a privately owned pension plan that offers flexibility in saving for retirement. 

With a PRSA, you have the freedom to make contributions at your convenience and can also choose to discontinue contributions whenever you wish.

Anyone can join a PRSA, regardless of their employment status. Whether you are self-employed or employed by a company, you can establish and maintain a PRSA.

What is a PRB?

A Personal Retirement Bond (PRB) is an individual policy established by pension scheme trustees to secure retirement benefits for a former member of the scheme. 

Essentially, if you leave a pension scheme, you have the option to transfer your pension benefits by having the fund’s value invested in a bond.

If you are considering leaving your current employer, especially if you are a member of the group pension plan, a Personal Retirement Bond (PRB) can be an excellent choice. 

A PRB is also a suitable option if you opt to leave a company pension scheme for various reasons or if the scheme is in the process of winding down.

How do private pensions work

When you contribute to your private pension, the government provides tax relief on those contributions. 

This means that the money you contribute to your pension is deducted from your taxable income, reducing the amount of income that is subject to taxation. 

The level of tax relief you receive depends on your income and the tax rate applicable to you.

For example, if you are in the higher tax bracket and you contribute €1,000 to your private pension, you may receive €400 in tax relief, effectively reducing the cost of your contribution to €600. 

This tax relief can significantly boost your retirement savings over time.

Furthermore, a private pension allows you to take control of your retirement savings, offering flexibility in investment choices and providing opportunities for your contributions to grow over the years. 

This control empowers you to tailor your pension plan to your specific financial goals and risk tolerance.

How do private pensions work? - True Wealth

How Much Should I Save for Retirement?

Determining how much you should save for retirement involves considering various factors to create a personalised retirement plan. Here are key factors to consider:

Your Desired Lifestyle in Retirement

Think about the type of lifestyle you want to lead during retirement. Consider your housing, travel, leisure activities, and other expenses. This will help you estimate your retirement budget.

Current Age and Retirement Age

Your current age and the age at which you plan to retire are crucial. The sooner you start saving, the more time your investments have to grow. Delaying retirement allows you to save more.

Consider life expectancy

It’s important to note that predicting your exact lifespan and the required duration of your pension is uncertain. 

However, we can gain insights by considering the current life expectancy, providing a starting point for planning. From there, you can build and refine your retirement strategy.

With improved health and increased life expectancy among the aging population, life expectancy is on the rise. 

By the year 2046, men can anticipate an average lifespan of 85 years, while women can expect to live until around 89 years on average, according to the Central Statistics Office.

Expected Inflation 

Consider the impact of inflation on your future expenses. Prices tend to rise over time, so your retirement savings need to keep pace with inflation.

Inflation is the gradual increase in the cost of living over the years. To maintain your purchasing power in retirement, it’s crucial to account for inflation when calculating your retirement savings. 

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Types of Funds and Risks

The specific funds you select for your retirement savings can greatly impact the potential for compound growth. 

Generally, investing in a diversified portfolio of assets can help spread risk and maximise growth potential. 

The level of risk you’re comfortable with will depend on your individual financial situation and risk tolerance. 

Younger individuals may opt for a more aggressive investment strategy, while those closer to retirement might choose a more conservative approach.

Employer Benefits

If your employer offers a pension plan with matching contributions, take full advantage of it. Employer contributions can significantly boost your retirement savings.

For example, let’s take the scenario where you are an employee and have a company pension plan. 

You’re earning €52,000 per year, contributing 5% of your annual salary per month. The company’s contribution matches your contribution at 5%. 

Additionally, you fall within the 40% tax bracket.

Both you and your employer are contributing €217. 

The crucial point to note is that thanks to tax relief, your effective cost is only €130. This means you’re able to contribute more to your pension pot while paying less, all thanks to the tax relief benefit.

You’re getting €304 more into your pension pot, it’s literally free money!

How do company pensions work? - True Wealth

Use a Pension Calculator

You can also use a pension calculator. This tool can assist you in determining the appropriate amount to allocate to your pension. 

Additionally, it will illustrate the potential tax relief you could qualify for on your contributions. 

You may quickly determine the suggested retirement savings you should start saving for by entering your personal information and defining your retirement goals.

Consult a Financial Advisor

Consider seeking professional advice from True Wealth. We can help you create a personalised retirement plan based on your specific financial situation and goals.

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Is it possible to vary my contributions?

Most pension plans offer the flexibility to increase or decrease your contributions whenever you choose. 

You can also take a “payment holiday,” temporarily halting your contributions if necessary, and resume them when you’re able. 

Keep in mind that reducing or missing contributions will lower the eventual value of your plan, potentially resulting in a smaller pension than you anticipated. 

What happens to my pension if I change jobs?

If you already have a pension plan of your own, you can choose to leave it where it is or you can carry it over to your new employment and keep it going.

Additionally, you can transfer to a Personal Retirement Bond (PRB). PRBs offer investment flexibility and may give you extra benefits including retirement age alternatives, and the ability to withdraw a lump sum of money tax-free as soon as you turn 50.

We can offer you advice based on your retirement goals and financial situation if you’re not sure what to do with your old pension.

What is pension tracing?

Pension tracing is finding forgotten or old pension funds from past jobs, and potentially combining them and transferring them into a new or existing pension that you manage.

This is part of planning for retirement that is often missed and it can significantly increase your retirement savings and simplify your financial life.

Learn more by reading our article, The Importance of Pension Tracing in Shaping Your Retirement Strategy.

How does tax relief work on pension contributions?

If you contribute to a pension plan, you are eligible to receive an income tax relief on your contributions.

The maximum income tax rate that applies to you, also known as the marginal rate, determines the amount of tax relief on your pension payments.

Pension tax relief - how it works - True Wealth

The exact benefits and rules can vary, so it’s advisable to consult with one of our financial advisors at True Wealth.

What is the maximum pension contribution amount eligible for tax relief?

The tax relief for pension contributions has two primary limitations:

  1. An age-related earnings percentage limit.
  2. A total earnings limit.

Age-related contribution limits

You can receive tax relief up to the applicable age-related percentage limit of your earnings within a given year.

For instance, when you’re 29 years old, there’s a limit of 15% of your total income that can be allocated to your pension fund. This allocation limit incrementally increases as you progress through age groups, reaching its highest point at age 60 and beyond, currently standing at 40% of your salary.

If you have multiple sources of income, this relief is applicable solely to the income source for which the contributions are being made.

limit for tax relief on pension contributions table

Total earnings limit

The maximum annual earnings considered for calculating tax relief is €115,000.

It’s important to note that employer contributions to an employee’s pension scheme are not factored into the calculation of the employee’s earnings threshold.

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Can I make additional contributions to my pension?

Yes, you can make additional contributions to your pension, and it’s a common practice for individuals looking to boost their retirement savings. 

These additional contributions are called Additional Voluntary Contributions (AVCs) and can be made on top of your regular pension contributions. 

Making AVCs can provide you with more flexibility and control over your retirement fund, allowing you to potentially increase your pension benefits. 

Do you get tax relief on AVC contributions?

Contributions made to a PRSA (Personal Retirement Savings Account) for Additional Voluntary Contributions (AVCs) are subject to specific rules regarding tax relief:

Tax Relief Calculation

Tax relief for PRSA AVCs is determined by the appropriate age-related percentage limit of the income earned from the relevant employment. This limit is adjusted to account for any employee contributions made to the pension scheme associated with that employment.

Special Contributions

You have the option to make a one-time or special contribution after the conclusion of a tax year. This contribution must be made before the following 31st of October.

Retroactive Tax Relief

If you opt to make such a payment, you can choose to receive tax relief for the contributions in the preceding tax year. This adjustment also needs to be completed before the 31st of October in the subsequent year.

Using Revenue Online Service (ROS) 

It’s important to note that when utilising the Revenue Online Service (ROS), there may be extensions to the deadlines for both contribution payments and making this retroactive tax relief choice.

How much are pension charges?

The pension company will charge for setting up and maintaining your pension plan.

You don’t need to pay extra money separately because these charges will be taken from your plan automatically. 

These charges will reduce the overall value of your plan, so if you’re starting a new plan, it’s essential to ensure that the fees are reasonable and competitive.

When can I retire?

When you can access your retirement benefits will depend on the specific plan you have.

If you established a pension plan while self-employed or while working for an employer that did not make contributions to your pension, you possess a Personal Pension.

If you were employed by a company and enrolled in a pension scheme with contributions from your employer, you hold a Company Pension. This can come in the form of a Defined Contribution (DC) pension, a Defined Benefit (DB) pension, or an Executive Pension Plan.

If you opted to top up your company pension by making extra voluntary contributions, you possess an Additional Voluntary Contribution (AVC) pension.

Alternatively, you might have a Personal Retirement Savings Account (PRSA). This pension plan is open to individuals in various categories, including employees, self-employed individuals, homemakers, the unemployed, and others.

If you left an employer and moved your pension fund to an independent pension account, you hold a Retirement Bond.

Personal Pensions

You might have the option to access funds from your personal pension under the following conditions:

  • Any time between the ages of 60 and 75.
  • You might be able to retire early in the event of severe illness
  • You may retire before the age of 60 when you are permanently unable to work.
  • People in some occupations are allowed to retire early, such as golfers, rugby players, jockeys, and similar occupations.

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Company Pensions

  • The standard retirement age is determined by your employer and usually falls within the range of 60 to 70. 
  • If you are 50 or older, early retirement is a possibility, provided it’s approved by your employer and the pension trustees. 
  • Additionally, early retirement due to serious illness is an option. In specific cases, you may be able to retire at any age if you are permanently incapable of working.

Personal Retirement Savings Accounts (PRSAs)

  • You can access your PRSA at any point within the age range of 60 to 75. 
  • In some situations, it may be possible to start receiving benefits from as early as age 50.

Additional Voluntary Contribution Pension

Given that your additional voluntary contributions are associated with your company pension, you must use the funds from both at the same time.

Retirement Bonds

  • Your standard retirement age is established within your company pension plan and remains unaltered when transferring to a Retirement Bond. 
  • It can be between 60 and 70. 
  • You have the option to opt for early retirement starting at age 50. 
  • Additionally, early retirement due to severe illness is possible, contingent on approval from the Revenue.

What options do I have when I retire?

You will have various options when you reach retirement, and, subject to specific guidelines from Revenue, you can potentially combine these options. 

The range of choices accessible to you upon retirement is contingent upon the type of pension you hold.

There are four main options available to you:

  1. Take a tax-free retirement lump sum (subject to a lifetime limit of €200,000)
  2. Take a taxed retirement lump sum
  3. Invest in an Approved Retirement Fund (ARF)
  4. Buy an Annuity

What is an Annuity?

Once you’ve received your tax-free lump sum upon retirement, you might have the option to select either an Annuity or an Approved Retirement Fund (ARF)

An annuity is structured to offer a consistent and assured income stream for your lifetime. It’s crucial to select an annuity that aligns with your own and your spouse’s retirement needs. 

Learn more about the differences between an ARF and an Annuity by reading our article, Pension annuities: retirement income for your whole life?

What is an ARF?

An Approved Retirement Fund (ARF) provides retirees in Ireland with increased control over their pension funds. 

ARFs allow you to remain invested in the financial market, giving you flexibility in managing your investments and enabling you to take a variable income during retirement. 

You, as a retiree, can decide the portion of your pension fund to invest and select your desired risk level with an ARF.

You should be aware that the value of the fund can vary due to market conditions, even though you have the option to make periodic or as-needed withdrawals from it.

Learn more about the differences between an ARF and an Annuity by reading our article, What is an Approved Retirement Fund (ARF)?

What if I die after Retirement?

This is the phase where you access your private retirement benefits and make use of the funds and then pass away.. 

Regarding the distribution of your pension upon retirement:

  • You receive a tax-free lump sum amounting to 25% of your pension fund.
  • This lump sum can be inherited as a component of your estate.
  • The inheritance may be subject to inheritance tax, which depends on the individual(s) inheriting your estate.

Retirement Lump Sum

When you pass away, this money becomes part of your estate. Different levels of taxes will apply depending on who inherits the money.

Annuity

You have the option to determine what will happen with your pension upon your passing. For instance, it can stop immediately, or it can continue to be paid, at a reduced rate, to your widow/widower or partner.

It can provide a guaranteed level of pension income for your spouse or civil partner for up to 10 years.

For example, if you buy an annuity with a 10-year guaranteed period, and you pass away one year after retiring, your family will receive your income for the remaining 9 years.

Approved Retirement Fund

The worth of your ARF is transferred to your estate when you die. The applicable tax levels vary depending on who inherits the money.

Learn more about Annuities and ARFs by reading our Guide to Post-Retirement Planning.

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How to Start a Private Pension

If you haven’t started a pension, the moment to do it is right now. 

By starting your pension today, you still have the opportunity to get income tax relief and have the time to build up an adequate pension plan.

Starting a pension is relatively straightforward. You can:

Seek a professional advice 

Contact True Wealth to get tailored advice to understand your options and create a personalised retirement plan.

Choose a pension provider

Research different providers, their fees, and the investment options they offer.

Open a pension account with True Wealth

Complete the necessary paperwork and set up your pension account.

What is the Retirement Planning Process with True Wealth?

At True Wealth, we understand the importance of effective retirement planning and take pride in guiding our clients through each step of the process. 

From the initial consultation to signing the paperwork, our dedicated team of financial advisors is with you every step of the way. 

Retirement Planning Process with True Wealth

1. Get a quote

The first step in your Retirement Planning journey begins with getting a quote

You will be asked some quick questions which will help us to pair you with a financial advisor to suit your unique situation.

2. Discovery consultation

During our discovery consultation, we provide you with a quote, and you’ll have the chance to have a one-on-one conversation with your dedicated financial advisor.

Your advisor will invest the time to grasp your unique situation and expectations, setting a solid groundwork for your retirement strategy. 

Crafting a custom retirement plan involves a comprehensive fact-finding process.

This entails collecting data about your current financial position, your comfort level with risk, your preferred investment options, and the timeline for your retirement. 

This step is pivotal in evaluating the appropriateness of various pension options.

3. Assess different types of pension options

Our team will present you with a range of pension options tailored to your specific needs. 

We will explain the advantages and disadvantages of each, ensuring you have a clear understanding of your choices. 

This comprehensive assessment helps you make an informed decision about your pension plan.

5. Risk Assessment

Understanding your risk tolerance is fundamental to the pension process. 

We will work with you to assess your comfort level with different levels of risk. 

This information will guide the development of an investment strategy that aligns with your preferences and goals.

6. Select investment strategies

Based on the risk assessment and your long-term objectives, we will recommend investment strategies that maximise your retirement savings. 

Whether you prefer a conservative approach, an aggressive strategy, or something in between, our goal is to create a diversified investment portfolio that suits your needs.

7. Sign your paperwork

Once you are satisfied with your retirement plan and investment strategy, it’s time to sign the necessary paperwork to put your retirement plan in action. 

Our team will walk you through all documentation, ensuring that you understand each aspect of your pension arrangement.

How can my retirement portfolio include investments that are both sustainable and ethical?

As awareness of climate change and social responsibility continues to rise, an increasing number of individuals are keen on integrating ethical and sustainable investments, commonly referred to as ESG investing, into their retirement portfolios.

There are diverse opportunities for ethical and sustainable investing, including options like green bonds, renewable energy funds, and socially responsible funds. 

Feel free to reach out to us for more information about the ESG investment choices tailored to your needs. 

Are you ready to start working with True Wealth to plan your retirement?

True Wealth understands that retirement planning is not one-size-fits-all. We work closely with you to develop a personalised strategy that aligns with your unique financial situation, lifestyle, and retirement goals. 

This tailored approach ensures that your plan is precisely designed to meet your expectations.

Seeking professional advice from True Wealth is an investment in your future. 

With our expertise, you can navigate the complexities of retirement planning in Ireland, make informed financial decisions, and secure a comfortable retirement that aligns with your dreams and expectations. 

Don’t limit your retirement to the State pension; partner with True Wealth for a well-structured and tailored retirement plan.

We are also experts in personal and business protection, savings and investments, pension tracing, personal and business financial planning, mortgages, and wealth extraction.

Last but not least, check out our article, where we delve into some of the most common retirement planning mistakes and provide insights on how to avoid them.

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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.

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