There are a number of important points that you should remember when starting a pension:
- A pension is still the most tax efficient way of saving for your retirement.
- The old age pension of €230.30 a week or €11.976 per year is probably not enough to maintain your standard of living.
- We are all living much longer in retirement and we will need a pension to maintain a good living standard.
We have tried to answer some typical questions often asked by new customers below:
Q. IS THERE ANY POINT IN STARTING A PENSION IN THE CURRENT CLIMATE?
A. You 100% will need a pension in retirement. Lets look at the facts - At best the state pension pays €230.30 a week for a single person. That’s just under €12,000 a year. If you work a 40-hour week on the minimum wage currently you would earn just under €18,000 a year.
Even with the current cuts in relief, your pension remains the most effective way to put some money aside for the future.
Q. HOW MUCH DO I NEED TO PUT ASIDE FOR RETIREMENT?
A. There is not specific figure as it depends on your lifestyle and how much you feel you can live on in retirement. The earlier you start a pension the better it is from your perspective. Remember your private pension can be used to conjunction with your state pension to make up an income in retirement.
The National Pension Policy Initiative in 1998 established, as a rule of thumb, that adequate gross retirement income would be 50 per cent of gross pre-retirement income. This figure would include the State pension.
For example: If you have a pre-retirement income of €80,000 before tax and you are aiming for a pension income of €40,000. You can expect €12,000 to come from the State pension, you still need to find about €28,000 a year. Circa €600,000 to €750,000 would be needed to privide that level of income based on current figures.
Q. WHAT INCENTIVES ARE STILL AVAILABLE FOR PEOPLE LOOKING TO INVEST IN A PENSION?
A. Pensions are being squeezed on two fronts. On one side, the level of relief you can claim on pension contributions has fallen and on the other, the size of the pension pot you can build up is being reduced.
On the relief side, until recently people could claim relief against PRSI and the health levy as well as income tax at their marginal rate (41 per cent for higher rate income taxpayers). That disappeared last year in the Budget, you no longer get relief from PRSI and Health levy but you still receive income tax relief.
Q. AND WHAT ABOUT EXPENSES? WILL MY PENSION BE EXPENSIVE?
A. Pensions can be expensive when you dont look closely at the charges. Many pensions have fund management fees and commissions built into the product and that is why its important to get advice. At Paul Ryan PFC we can give you a complete picture of the charges associated with your pension.
Q. HOW LIKELY IS THE RETIREMENT AGE TO INCREASE FOR ME WHEN IT COMES TO TAKING MY PENSION? HOW DOES THIS SQUARE WITH THE STATE PENSION?
A. It’s very likely that the retirement age will increase. The Government has already announced that qualification for the State pension will rise from 65 to 66 in 2014; to 67 in 2021, and to 68 in 2028.
It is unlikely that people in the private sector would still be forced to retire at 65 when they cannot claim the State pension for up to three years thereafter.