Why have a pension?
Everyone should have a pension or at least consider it at some stage, it is important to get proper pension advice to maximise your quality of life in retirement. Pensions provide a continuation of your quality of life through your retirement years. Government takes tax from your earnings once your income is over a certain level and you can see an example of this on your payslip. Putting money into a pension scheme may qualify for tax relief. This tax relief will allow your money to grow in your pension rather than to the government in tax.
When you retire, you can take a tax free lump sum of your pension. The rest of your pension will be used to provide a retirement income, which is taxable.
Pensions are tax efficient investments that increase savings and produce a greater yield per annum versus a traditional savings account. It is important to consult with your tax advisor on tax relief that you may qualify for based on your pension contributions.
How Pensions work
There are various types of pensions available from occupational pension schemes, personal pension schemes and state pension. Revenue has guidelines of how much you can contribute to your pension on an annual basis for tax relief. It is based on your annual earned income and your current age. You can contribute to your pension on a monthly basis or an annual basis. There is no specific age that you are set to retire and you can retire when you have sufficient saved to provide for the rest of your life. With life expectancies increasing it is even more important that you save sufficient money to provide you till the end of your life.
As mentioned before there are limits that you can contribute to your pension. Revenue has these guidelines set out based on the annual budget passed in the Dail. Here are a few questions you should ask yourself when you are planning for your pension:
How much will I need at retirement?
How much is my state pension going to be?
How much can I contribute?
What rate of market return should I expect?
Am I saving enough?
Defined benefit vs defined contribution.
Company pensions are set up as either a defined benefit or a defined contributions plan. A defined benefit plan is when you retire you will know how much you will receive on a monthly basis, it is usually around 1/3rd of your pay. The risk is on the employer as they have to fund your pension to meet this requirement. The risk here is that the company is still solvent before or at your retirement. Because of the risk on the company there are not many defined benefit plans out there.
A defined contribution is where you know how much you contribute on a monthly basis but you do not know how much you will receive at retirement. The amount received at retirement will be based on your contributions and the return of your pension investment. The risk is on you as you have to not only save enough but have a sufficient return on your investments. Companies can contribute to your defined contribution plan and is usually a percentage of your pay.
Dublin Based Pension Advisor
Trillium Financial Services will help you find out which pension is best for you and provide appropriate pension advice to suit each client’s financial plan. Legislation is always changing and it is important to keep up with current pension rules. As a client meets with us, we will go through an assessment and a review of their current pension and expected retirement objectives together. Once we have a clear picture of our client’s retirement fund and tax liability, we can analise which type of pension will meet the client’s objectives. The desired outcome is to have a financial plan that outlines the next steps for the client and serves to guide them toward their financial goals.
Listen to James' Interview on Dublin South FM about Self Administered Pension Funds
Contact us today to start your pension at 01 442 9950 or email us at James@Trillium.ie.