First the good news – as a nation, we’re living longer! And not just by a little.
According to the 2011 Census, there are 58,416 people aged 85 or over – that’s 10,000 more than 5 years ago. Of course, as life expectancy increases so does our need for a realistic retirement plan.
We all have a general idea of what we would like to do in retirement, whether it’s playing golf, travelling the world, taking up a hobby or indeed anything we choose with our long awaited time off.
In order to make those plans a reality though we all need to make a savings plan for the future. A pension is simply a retirement savings plan by another name. While your retirement may seem like a long way off, starting a pension now can make a big difference later on (not to mention the tax benefits in putting your money into a pension).
While you may be entitled to a State Pension at retirement, the age at which you can access this pension has been increased: it will not be paid until age 68 for people who were born on or after the 1st of January 1961. And even if you do get the full State Pension, at €230 per week currently, it’s designed to cover the basic necessities of life only and will be a sharp drop from your annual salary. Bearing this in mind you will need a plan to supplement the State Pension payment.
Pensions have a well-deserved reputation for being complicated!! To exacerbate the problem, there has never been an unprecedented level of changes to our pension’s legislation and Revenue practice.
The need for advice has never been more important!
Matching the correct product is the first step in the consulting process; and the key driver in this regard is your tax status. From a pensions perspective the Revenue Commissioners recognise two broad populations of tax payer
- Those assessed for tax under Schedule E These include all PAYE employees
- Those assessed for tax under Schedule D Case (i) and (ii) These include all self-employed individuals whose profits arise from carrying out a trade (e.g. a plumber) or profession (e.g. a dentist or solicitor).
It is essential to appreciate that it is the tax status of the individual that dictates the type of pension that they can contribute to. Self-employed individuals can only contribute to personal pension and PRSA contracts. Employees can contribute to an EPP but only if the employer sets one up in the first place. If the employer does not set up an EPP (or other occupational structure) then they are deemed to be in ‘non-pensionable employment’ and they are effectively treated as self-employed individuals i.e. they can only use PPP and PRSA contracts.