As we are living longer and healthier lives than ever before, it’s very important for clients to make adequate financial provisions to allow for a comfortable retirement. There is a wide variety of pension options available to suit the needs of each client and CFS can help you to make these important decisions in a tax efficient and flexible manner.A pension is a long-term investment where the money that you contribute is invested and used to provide an income when you retire, called an annuity. The state pension will provide a basic level of retirement income. However you will need to decide whether this is enough to live on in retirement and if not where the additional income will come from.
Categories of Pensions available:
Occupational Pension schemes are set up by employers to provide a pension and lump sum at retirement. These benefits will be based on either a member’s final earning or on the value of their retirement fund. The advantage of these plans for the employee is that the employer helps pay towards the cost of the benefit. Company employees should check to see if their employer has such a plan and whether they are eligible to join.
Proprietary Directors can also establish their own private retirement fund, or Executive Pension Plan, offering significant tax benefits and a much wider choice of investments. One of the key benefits offered is the ability to transfer funds from your business, before any tax is levied, into a Small Self Administered Pension (SSAP) for Proprietary Directors.
Having this investment vehicle in place allows Propriety Directors to plan for their financial freedom in the most tax-efficient and transparent way possible, while retaining the ability to dictate where the money is invested. Occupational Pension Scheme members, either Employees or Propriety Directors, can pay Additional Voluntary Contributions (AVCs) into the pension scheme over and above their normal contributions. The aim of this is to receive additional benefits at retirement.
Small Self Administered Pension (SSAP)
SSAPs are established under legislation, predominantly contained within the Finance Act, 1972, which states: A limited company may establish a Trust Fund under the terms of this Act for the benefit of its Proprietary Directors.
The primary benefit for Proprietary Directors is in efficient tax-planning. The allowances granted by Revenue authorities for proprietary directors are substantial and, within the cashflow constraints of any company, should be used to their maximum. A Trust Fund can make virtually any investment it cares to (e.g. property, stocks and shares, cash deposits, government or commercial loan stock, etc).
The Trust Fund can be accessed, at the discretion of the Proprietary Director, at any time after reaching the age of 50 and will have to be dissolved when the individual reaches the age of 75. For Proprietary Directors it is an extremely effective tax-planning tool and one that should be strongly considered. SSAP contributors may also pay Additional Voluntary Contributions (AVCs) into the pension scheme over and above their normal contributions. The aim of this is to receive additional benefits at retirement.
Proprietary Directors can also establish their own private retirement fund, or Executive Pension Plan, offering significant tax benefits and a much wider choice of investments. One of the key benefits offered is the ability to transfer funds from your business, before any tax is levied, into a Small Self Administered Pension (SSAP) for Proprietary Directors.
Having this investment vehicle in place allows Propriety Directors to plan for their financial freedom in the most tax-efficient and transparent way possible, while retaining the ability to dictate where the money is invested. Occupational Pension Scheme members, either Employees or Propriety Directors, can pay Additional Voluntary Contributions (AVCs) into the pension scheme over and above their normal contributions. The aim of this is to receive additional benefits at retirement.
Small Self Administered Pension (SSAP)
SSAPs are established under legislation, predominantly contained within the Finance Act, 1972, which states: A limited company may establish a Trust Fund under the terms of this Act for the benefit of its Proprietary Directors.
The primary benefit for Proprietary Directors is in efficient tax-planning. The allowances granted by Revenue authorities for proprietary directors are substantial and, within the cashflow constraints of any company, should be used to their maximum. A Trust Fund can make virtually any investment it cares to (e.g. property, stocks and shares, cash deposits, government or commercial loan stock, etc).
The Trust Fund can be accessed, at the discretion of the Proprietary Director, at any time after reaching the age of 50 and will have to be dissolved when the individual reaches the age of 75. For Proprietary Directors it is an extremely effective tax-planning tool and one that should be strongly considered. SSAP contributors may also pay Additional Voluntary Contributions (AVCs) into the pension scheme over and above their normal contributions. The aim of this is to receive additional benefits at retirement.
PRSAs are an investment vehicle used for long-term retirement provision by employees, self-employed, homemakers, carers, unemployed, or any other category of person up to the age of 75. It consists of a contract between an individual and an authorised PRSA provider in the form of an investment account. There are two types of PRSA – a Standard PRSA and a non-Standard PRSA.
The PRSA benefits will be determined by the contributions paid by and on behalf of the contributor, the charges and the investment return on those contributions. The PRSA contributor is the beneficial owner of the underlying assets, which may not be used as a form of collateral. PRSA products are jointly approved by the Pensions Board and the Revenue Commissioners.
Standard PRSAs, are permitted to invest in pooled funds and temporary cash holdings, which are made available by means of a contract of insurance. Charge can't be more than 5% of each contribution and 1% per annum of the fund value.
Non-standard PRSAs, offer a wider choice of funds than the standard PRSA, but at a cost. These plans generally have higher charges than standard PRSA's and there is no set limit on these charges.
PRSA contributors may also pay Additional Voluntary Contributions (AVCs) into the pension scheme over and above their normal contributions. The aim of this is to receive additional benefits at retirement.
The PRSA benefits will be determined by the contributions paid by and on behalf of the contributor, the charges and the investment return on those contributions. The PRSA contributor is the beneficial owner of the underlying assets, which may not be used as a form of collateral. PRSA products are jointly approved by the Pensions Board and the Revenue Commissioners.
Standard PRSAs, are permitted to invest in pooled funds and temporary cash holdings, which are made available by means of a contract of insurance. Charge can't be more than 5% of each contribution and 1% per annum of the fund value.
Non-standard PRSAs, offer a wider choice of funds than the standard PRSA, but at a cost. These plans generally have higher charges than standard PRSA's and there is no set limit on these charges.
PRSA contributors may also pay Additional Voluntary Contributions (AVCs) into the pension scheme over and above their normal contributions. The aim of this is to receive additional benefits at retirement.
Any individual earning an income, who is self-employed or unable to join an occupational scheme, can start up a personal pension plan. Personal Pensions (RACs) are defined contribution pension plans. The value of the ultimate benefits payable from the contract depends on the level of contributions paid, the investment return achieved and the cost of buying the benefits. You are entitled to income tax relief on contributions paid to an RAC. This relief is normally claimed back from the Revenue in your annual tax return and the pensions funding limits are set out on the following table.
Self-Directed Personal Pensions (SDPP) – The Self-Directed Personal Pension (SDPP) allows the self-employed to control the investment decision for their pension fund. They can invest in a wide variety of assets such as direct shares, direct property investments or other bespoke investment opportunities that arise. They can also invest in Geared funds which will offer potentially more attractive returns in the long term. Investors in such Geared funds will need to be very conscious of the risk associated with investments of this nature. CFS is dedicated to building new and innovative ways for our clients to create wealth and the SDPP is one option to be considered.
| Highest age during tax year | Pension Funding limit |
| Under 30 | 15% of Net Relevant Earnings |
| 30-39 | 20% of Net Relevant Earnings |
| 40-49 | 25% of Net Relevant Earnings |
| 50-54 | 30% of Net Relevant Earnings |
| 55-59 | 35% of Net Relevant Earnings |
| 60 and over | 40% of Net Relevant Earnings |
Self-Directed Personal Pensions (SDPP) – The Self-Directed Personal Pension (SDPP) allows the self-employed to control the investment decision for their pension fund. They can invest in a wide variety of assets such as direct shares, direct property investments or other bespoke investment opportunities that arise. They can also invest in Geared funds which will offer potentially more attractive returns in the long term. Investors in such Geared funds will need to be very conscious of the risk associated with investments of this nature. CFS is dedicated to building new and innovative ways for our clients to create wealth and the SDPP is one option to be considered.
The State Pensions are intended to ensure that people receive a basic standard of living in retirement. The State provides three types of pension:
- State Pension (Transition) which is payable at age 65 to people who have retired and who have satisfied certain PRSI conditions
- State Pension (Contributory) which is payable at age 66 to people who have satisfied certain PRSI conditions
- State Pension (Non-Contributory). This is a means tested pension for people aged 66 or over and who do not qualify for the Retirement Pension or Old Age (Contributory) Pension based on their social insurance record
At retirement you will have a number of options available to you. These may include:
ARF (Approved Retirement Fund): If you are retiring with a Personal Pension, PRSA or a Company Pension where you were more than a 5% director, you have a choice of retirement options. You can choose an Annuity or you can choose an ARF. An ARF will give you more choice in relation to investment options when you retire and is managed by a regulated fund manager.
AMRF stands for Approved Minimum Retirement Fund. Upon retirement, up to 25% of a pension fund may be taken as a tax-free lump sum by qualifying persons. Then at least €63,486.90 of the remaining fund must be placed in an AMRF. This capital is not to be drawn down until the age of 75 (some exceptions apply), although investment growth may be withdrawn, and is subject to income tax.
All pension plans allow you to take a tax-free lump sum. With an RAC or PRSA the maximum you can take is 25% of your fund. With a company pension plan the maximum you can take at normal retirement age with 20 or more years’ service is 1.5 times your final earnings. Lower amounts are payable if you retire early or have less service.
Once the lump sum has been extracted, you will need to decide on which pension option is the most suitable for you. Fund size, personal circumstances and prevailing economic conditions can all play a part in this decision.
- Taking a tax-free lump sum, subject to limits set by the Revenue,
- Purchasing a guaranteed income for life (annuity)
- Transferring some or all of your retirement savings to an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF)
- Taking a taxable lump sum
ARF (Approved Retirement Fund): If you are retiring with a Personal Pension, PRSA or a Company Pension where you were more than a 5% director, you have a choice of retirement options. You can choose an Annuity or you can choose an ARF. An ARF will give you more choice in relation to investment options when you retire and is managed by a regulated fund manager.
AMRF stands for Approved Minimum Retirement Fund. Upon retirement, up to 25% of a pension fund may be taken as a tax-free lump sum by qualifying persons. Then at least €63,486.90 of the remaining fund must be placed in an AMRF. This capital is not to be drawn down until the age of 75 (some exceptions apply), although investment growth may be withdrawn, and is subject to income tax.
All pension plans allow you to take a tax-free lump sum. With an RAC or PRSA the maximum you can take is 25% of your fund. With a company pension plan the maximum you can take at normal retirement age with 20 or more years’ service is 1.5 times your final earnings. Lower amounts are payable if you retire early or have less service.
Once the lump sum has been extracted, you will need to decide on which pension option is the most suitable for you. Fund size, personal circumstances and prevailing economic conditions can all play a part in this decision.