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Planning for the Future

No matter what comes from the new budget, people should be and need to be contributing to their pensions. Taking matters into you own hands and start investing today to ensure that you will have the amount of money you need at retirement. Reports have shown that the economy is picking up, so if you have not made contributions to your pension in the past 4 or 5 years, you need to start thinking again about retirement. As the new budget looks to have come out with higher taxes to be collected, contributing to your pension will not only help you save for the future but possibly reduce your tax bill as well. Here are a few points that help unpack this a bit more:

1. Contributions to pension reduces income tax bill.

2. For a 35 year old self-employed person with 50k per annum net relevant earnings and not contributing to any pension plan – Their maximum pension contribution is at 20%*, which is €10,000 for that tax year. The actual contribution would be €6,000 after tax relief if you are at the 40% marginal tax rate or €8,000 if you are at the 20% marginal tax rate. Pension contributions are still subject to USC and PRSI.

3. Growth in a pension grow tax free.

4. State pensions are subject to changes in pension laws with each budget. Maximise your pension contributions and grow your pension to maintain a quality of life that you are accustomed to.

5. Self-administered or self-directed pensions allow you to have direct control of investment policy and management of the funds.

6. Defined benefit pension is a pension in which you will receive a monthly/annual income at retirement based on your current salary. The benefit is guaranteed by the company which you work for. The ‘pros’ of this is you know what you will get at retirement and the ‘cons’ is the benefit remains as long as the company remains.

7. Defined contribution pensions are pensions in which you know the amount you contribute at every pay period but do not know the monthly/annual income you receive when you retire. Your income is based on the amount at retirement and return on your investment. The ‘pro’ is that you can get a great return on your funds and this can also be a ‘con’. The ‘cons’ is not knowing what income you will receive at retirement till the retirement date.



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