28th October 2015 – Pension Pointers

As the end of year tax returns and some company year ends approach the following are a couple of points to consider re pensions

  • Budget 2015 – the pension levy is being withdrawn at the end of 2015
  • The state contributory pension is currently 230.30 p/w.  Add a dependent’s pension (over age 66) and the total is 436.6 p/w which is 22,703.2 p/a. This works out at a retirement fund of €504,515.56 for each couple with full contributory history (based on annuity/pension rate 4.5% p/a). This is financed by PRSI contributions plus additional contributions from the Government Finances. Following on from the Budget, this will increase by 3 euros p/w.  How sustainable are these levels going forward……
  • There is an old pension rule – 10 times salary provides for 50% pension

For example – For a Gross salary of 50,000, target a retirement fund of 500,000 to provide an income of 25, 000 p/a – are you on track…..

  • Keep it all tax free (tax relief on contributions, growth tax free and take out tax free)
    • – Aim for a fund of circa 400,000

(These are sample figures and retirement options will be bespoke to the individuals situation at that time)

Fund of 400,000 today :

  • Take 25% Tax free cash = 100,000
  • Transfer Balance of 300,000 in AMRF/ARF taking income of 4% p/a = 12,000
  • State contributory pension with dependents pension = 22,703

Total income is 12,000 + 22,703 = 34,703 p/a which is below the income exemption limit of 36,000 p/a for a couple

A reminder of the tax relief on pension contributions

  • Sole Trader – The tax relief is 40%  for those on the higher rate of tax and 20% for those on the Standard rate.
  • Company Director – Employer contributions receive tax relief of 12.5% plus exempt from BIK, PRSI, USC

Any growth in the funds are tax free (no exit tax/DIRT/capital gains tax)

The pension is the most tax efficient way of transferring funds built up in your business into your personal capacity. This becomes very important as you approach retirement.