It is never too late to start paying into a pension and the sooner the better. The tax incentives for paying into a pension plan are attractive as it is accumulated tax free subject to certain limits. The age at which you can access the State Pension in retirement has increased. For folks born on or before 1st January 1961 pension will be paid at age 68. Current State Pension is €248.30 Euro per week or €12,912 per Annum. Note that some people will NOT receive a full State pension because they have not paid in enough PRSI contributions. With these scenarios in mind there will be a significant drop from your annual salary which will need to be supplemented. One of the options available is to start paying into a personal pension plan.
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There is a maximum annual amount of earnings for which tax relief is provided. This is €115,000 currently. Known simply as age related contributions:
You can get tax relief up to the relevant age-related percentage limit of your earnings in any year.
You might have more than one source of income. If you do, this relief is only from the source of income in respect of which the contributions are made.
Age-related percentage limit for tax relief on pension contributions
|60 or over||40%|
Limits of tax relief on pension contributions
Tax relief for employee pension contributions is subject to two main limits:
- an age-related earnings percentage limit
- total earnings limit.
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From the age of 60 onwards you can access your Personal Pension Plan. You can also access your Personal Pension Plan on ill health retirement at any age. The value of your Personal Pension Plan is payable in full to your estate if you die before drawing on your benefits.
You will have a number of options when it comes to taking your retirement benefits from your PRSA. You can take a lump sum of up to 25% of your fund subject to the following limits:
|Lump sum amount (25% of fund)||Rate of tax|
|Up to €200,000||Tax free|
|Next €300,000||Standard rate (currently 20%)|
|€500,001 and over||Marginal rate (currently 40%) plus PRSI and|
With the balance of your Personal Pension Plan you can choose to:
- Buy an annuity
- Transfer to an Approved Retirement Fund (ARF) and/or Approved Minimum Retirement Fund (AMRF) to be held in your name
- Take the balance as a taxable lump sum subject to putting €63,500 in an AMRF (or annuity) or having a guaranteed income of €12,700 or on reaching age 75.
Livingstone Financial Services Ltd will guide you through the process when you are ready to find out more.