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Savings & Investments As well as putting money aside for your retirement you may also need to put money aside for a rainy day or for a particular reason like education or house purchase. Even if you save small amounts regularly, it will help you to: manage your money and cope with unexpected expenses and emergencies, afford things you need in the future borrow less and ease financial stress. We have a number of saving and investment options to choose from. Unit-linked funds With unit-linked investment plans, your money is pooled with money from other investors and used to buy units in an investment fund. The number of units you get depends on how much you invest and the price of the units at the time you buy. You can invest either a lump sum or make regular savings depending on the fund. Professional investment managers look after the fund and decide how to invest it. They can invest in a mix of assets such as: cash or high-interest deposits, bonds issued by governments and companies, which pay a fixed rate of interest for a set time, equities, or shares, in Irish and international companies quoted on stock markets, property, including commercial properties such as offices and shops which produce an income from lease or rent. You can choose from a range of different funds to suit your attitude to risk. These include low-risk deposit-type funds, medium-risk funds and higher-risk funds that are almost completely invested in the stock market. The safer the fund, the lower the potential return, while riskier funds offer the prospect of higher profits but involve more risk to your capital. Almost all unit-linked plans involve capital risk, but some plans offer a money-back promise on a particular date, for example, the sixth anniversary. Such plans usually have lower potential for growth than other unit-linked plans. Unit-linked funds are open-ended, which means you can withdraw part or all of your investment at any time. However, you should be prepared to hold your investment for at least five years as most of these plans may have a very low or even negative return in the early years. Also, if you need to withdraw in the first few years you may have to pay an early encashment fee.. With-profit funds You could consider investing in a special type of unit-linked fund, known as a ‘with-profit’ or ‘smoothed fund’, to reduce risk. If your fund performs well in a particular year, the fund manager may hold back some of the growth to prevent a fall in value in later years when the fund may not do so well. This ‘smoothing’ evens out investment gains and losses, so that there is no dramatic rise or fall in the value of your investment fund in any particular year. You can only benefit from this fund smoothing if you are prepared to leave your money in the fund and withdraw it only on specified withdrawal dates, such as the 10th anniversary. These are the only dates when your original capital is protected. If you withdraw outside these dates, a penalty known as a market value reduction (MVR) may be applied, which would reduce your investment by a certain percentage. An MVR is used to protect all investors in a fund and usually applies if you withdraw your money when investment markets are down in value or when there are a large number of withdrawals. |
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Annuities An annuity is a contract with a life assurance company that will pay you a guaranteed, regular pension income for life in return for a capital sum. In this case, the capital sum comes from your retirement fund. Approved Retirement Funds (ARFs) An Approved Retirement Fund (ARF) is a personal retirement fund where you can keep your money invested as a lump sum after retirement. You can withdraw from it regularly to give yourself an income, on which you pay income tax. Any money left in the fund after your death can be left to your next of kin. The decisions such as contribution level, fund choices, expected retirement age, preference for annuity or ARF will effect your pension payments on retirement, so it is important that you get good financial advice from a QFA qualified adviser when you set up your pension. Executive pension plans and company director pensions, generally work in the same but with differences in the contributions and retirement options. |
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Tax-free investment growth |
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Tax-free investment growth You don't have to pay tax on the growth of your pension fund. This means, it can grow in value more quickly than a standard investment plan, where you have to pay tax of 26% on any growth you earn. Tax-free cash when you retire When you retire you can take part of your pension fund as a tax-free lump sum. The amount you can take depends on the type of pension plan you have. It is important to remember that your regular pension benefit will be subject to income tax. An employer or occupational pension plan is one that is set up by an employer to provide pension and other benefits for employees. The main advantage of this type of plan is that your employer must make a contribution to it (expect PRSA's), even though the amount may be small. . Your employer automatically takes your contributions from your salary before working out income tax. So you get tax relief automatically because you don't pay tax on your pension contribution. If you are not eligible for an occupation pension plan you can set up a person pension plan or a personal retirement savings account ( PRSA) where you can get the same tax relief. Most employer plans and all personal pension plans and PRSAs are now set up as defined contribution plans, where the final pension available will depend on the amount of contributions and the fund growth Additional voluntary contributions (AVCs) You may want to save more than the minimum in your occupational scheme in order to boost your pension fund. Extra contributions are known as AVCs, or 'additional voluntary contributions'. You should consider making AVCs if: you want to boost the value of your pension fund, you do not have enough years of service to give you the pension you need, you could get more tax relief on your contributions because of your age. It is important to keep your pension plan under review, as well as variations in fund performance your pension fund will be affected if you: move jobs, retire early, become ill and can no longer work, die before you retire. What happens on retirement? When you retire you can usually take your benefits in two separate parts - A tax-free lump sum and a pension for life (subject to income tax). For a personal pension plan or PRSA or AVC when you retire, you can immediately take 25% of your retirement fund as a tax-free lump sum, to use as you want. You can use the rest of your fund to buy an annuity, which gives you an income for the rest of your life. If you already have a secure pension income from other sources of at least €12,700 a year, you can also choose to: take the remaining 75 per cent of your retirement fund as cash and pay income tax on it; or invest the money in an Approved Retirement Fund (ARF). |
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Short Guide to Pensions If you want to be free to do what you want later in life you must make the most of the cash and investments you have now. The state, provide generous tax relief for people who invest in their retirement by taking out a pension. There are a number of different options you can take depending on your employment status and all options get government tax relief. Tax relief on your net relevant earnings varies with age. PRSA: Personal Retirement Savings Account – a cost effective and portable pension plan. Occupational Pension Scheme: - set up by your employer, both employer and employee can contribute. Personal Pension Plan: - can be taken if you are self employed or don’t have an occupational scheme. AVC: Additional Voluntary Contributions- can be taken out if you are part of an occupational scheme and haven’t reached your tax relief limits. Remember if you are working now , then your income will drop dramatically when you retire if you were to rely on the state pension alone. Not only will you get valuable tax relief when you are working you will also get peace of mind when you retire. Stop thinking about a pension and contact us today for advise on your options. |
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Pensions Its important to save for a pension in order to maintain your standard of living when you retire and are no longer earning a wage. If you want the freedom to do what you want later in life you need to make the most of the cash and investments you have now. Once you retire, you could suffer a sharp fall in your standard of living as you are no longer earning your regular wages . If you have to live on the state contributory pension, for example, you would get €230.30 a week So you need to plan for your retirement, if you want a reasonable standard of living. You can put money or investments aside for your retirement - but the most tax efficient way to do it is through a pension plan. A pension plan is basically a savings plan with the added advantage of generous tax benefits. The main advantage of a pension plan over other forms of saving and investment is the tax benefits available. Which are tax relief on your contributions, tax-free investment growth and an amount of tax-free cash when you retire. Tax relief on contributions For every €100 of your income that you invest in a pension plan, the real cost to you after tax relief is less. It costs you: * €80 if you pay tax at 20% * €59 if you pay tax at the top rate of 41% If you are an employee, the real cost will be even lower as you can also get some relief on PRSI (pay-related social insurance) and health levy payments. If you are a member of an employer pension plan, you don't have to pay tax on any contributions your employer makes. The percentage of your income you can get tax relief on for pension purposes depends on your age. It increases as you get older. Your age - % of your income you can get tax relief on Under 30 - 15% 30 to 39 - 20% 40 to 49 - 25% 50 to 54 - 30% 55 to 59 - 35% 60 or over - 40% If you are working now you will see a dramatic drop in your income when you retire, if you were to rely on the state pension Dont put it off until its too late, give us a call today and we can advise you on your options. - Its not as scary as you think. |
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