Pensions

Introduction

Generally people are living longer and leading more active lives in retirement. As a result it is more important than ever for you to think about where your income will come from when you retire. Your state pension will provide you with a basic level of retirement income, provided you qualify. When planning for retirement you will need to decide whether this is enough to live on in retirement and if not where your additional income will come from. It is important for you to take control of your retirement planning and make decisions regarding your pension. It is equally important for you to avail of independent financial advice. Money Doctors can help you in every aspect of your financial planning.

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Broadly speaking most peoples’ pensions come from one or more of the following

An occupational pension scheme (also known as a company pension plan )
A PRSA (Personal Retirement Savings Account )
A Personal Pension Plan (RAC – Retirement Annuity Contract )
The State Pension

Inform yourself about your pension – it’s YOUR responsibility …who will look after you in your retirement ? The current State social welfare pension is €277.30 per week – from 1st January 2024 – or € 14,419.60 per year …….will this be enough for you to live on ? 87% of a Pensions Board Consumer Research survey said that the State social welfare pension would NOT meet their needs in retirement. 890,000 of the Irish working population in 2023 have made no pension provision outside the State Pension Where will your ADDITIONAL income come from when you retire?

The Facts

1,000,000 people in Ireland aged between 44 and 64
54% of the adult Irish workforce are over 30 years of age
80% of defined benefit pension schemes are in deficit
60% of pensioners income comes from Social Welfare ( while 3/5ths of the poorest pensioners, Social Welfare pensions account for 80% of the retirement income )
Occupational schemes account for 24%
Of the 30 OECD countries, Ireland lies 3rd from bottom in terms of pensioner poverty

Start your pension early, the longer you leave it, the more you pay ! A man retiring at 65 now can expect to live to 83 and a woman retiring at 65 can expect to live to 86 ! It takes a long time to save for retirement and the earlier a person starts to contribute to a pension, the better. For those who switch off at the first mention of pensions, it’s time to get informed.

Starting a new job – ask about your pension ! Did you know

– By law, your employer must provide you with some form of access to a pension, whether you are in full-time, part-time, temporary, contract or casual employment. ( the employer does not have to contribuute to that pension though when auto-enrolment is finally introduced – end of 2024 or 2025 – all employers will have to contribute to their employees pensions.

– You are legally entitled to information about your employer’s pension scheme or your PRSA, thanks to the Pensions Act.

– You can save for retirement even if you are not working through a PRSA.

Government announcement on the New National Pensions Framework ( 3rd March 2010 ) Pension qualification age was supposed to be 67 in 2021 and age 68 by 2028 but the government backed down on this. The Government had also hoped to introduce a new mandatory or ‘auto-enrolment’ pension scheme as part of a major restructuring of pension provision in the State. Under the New National Pensions Framework, the State pension will remain the basis of the pension system in Ireland, with the Government undertaking to preserve its value at 35% of average earnings.

However, in future, workers aged over 22 earning above a certain income threshold may automatically be enrolled in a new supplementary pension scheme to provide additional retirement income – unless they are already in their employers’ scheme, which provides higher contribution levels or is a defined benefit scheme. Employees maybe expected to contribute 4%, with the Government and the employer providing matching contributions of 2% each – making a total contribution of 8%. Workers may opt out of the supplementary scheme, but it will remain mandatory for employers. However, employees will automatically be re-enrolled every two years. There will be a once-off bonus payment for people remaining in the scheme for more than five years continuously. This State contribution hope to replace the existing pension relief system which currently applies to existing occupational and personal pension schemes.

The qualification age for the State Pension will rise in future years however workers will be permitted to postpone collecting that pension, to make up contribution shortfalls. There are also proposals to devise a ‘revised and more secure’ defined benefit model, which schemes may wish to consider if restructuring in the future. Future employees joining the public service will enter a new pension scheme from 2010. The minimum pension age will be 66, with the pension based on a career average rather than final salary. The Government is also considering linking post retirement increases to the Consumer Price Index rather than pay rises in the grade the worker retired from. There will also be stronger regulation and more transparency on pension fund management charges. The Government is introducing the reforms to address problems regarding population changes, income adequacy in retirement and to ensure the sustainability of the Government finances.

It is estimated that while there are almost five workers to support each pensioner today, by the middle of the century that ratio will have fallen to less than two workers per pensioner – creating an unsustainable burden on the working population. It is forecast that this work will take up to five years to complete

Pensions Checklist

1. Does your employer have a company pension scheme?
2. Can you join the scheme?
3. Do you know what benefits the scheme provides?
4. Have you heard about Personal Retirement Savings Accounts (PRSAs)?
5. If you are an employee, do you know that your employer must provide you, by law with access to at least one Standard PRSA , if

– you have no company pension scheme, or

– you are only included in the scheme for death in service benefits, or

– you are not eligible to join the scheme within 6 months from the date you commenced employment, or

– you do not have access to Additional Voluntary Contributions (AVCs) through your scheme.

6. If you are unemployed or are a homemaker or carer, do you know you can provide for your pension by using a PRSA?
7. If you are in a self-employed trade or profession or have earnings from non-pensionable employment, do you know you can provide for your pension by using a PRSA or a Retirement Annuity Contract (RAC)?
8. Do you know that contributions paid to a pension scheme, PRSA or RAC will benefit from income tax relief at your highest rate of tax,
as outlined below:

Age at any time during the tax year

Under 30 Limit – 15%
30-39 Limit – 20%
40-49 Limit – 25%
50-54 Limit – 30%
55-59 Limit – 35%
60 and over – 40%

9. Have you decided what level of income you will need in retirement?

10. If you have a pension scheme, PRSA or RAC, are you contributing enough to it in order to provide a realistic replacement income in retirement?

Alternately, you may wish to book a personal one to one consultation with the Money Doctor face to face, email or by telephone…..

Providence Finance Services Limited trading as Money Doctors is regulated by the Central Bank of Ireland

Pensions

Introduction

Pensions Checklist

Age at any time during the tax year

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