A pension is basically a long-term savings plan. You save regular amounts or lump sums, called contributions, to build up a fund for retirement. The main advantage of a pension plan over other forms of savings and investments is the tax benefits available:
At present, the main tax benefits are:
- tax relief on your contributions
- tax-free investment growth
- an amount of tax free cash when you retire
What tax relief is available on pension 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 is 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 do not have to pay tax on any contributions your employer makes.
Where and how are my pension contributions invested?
Typically, the majority of pension plans are provided by Life Assurance companies and Investment firms. Your pension contributions are invested in one or more pension funds and are used to buy and sell assets, such as shares, property, bonds, commodities and cash. There are many types of pension funds, each invested in a different mix of these assets.
The value of your pension will rise as well as fall, depending on the performance of your chosen fund/funds. Your pension fund is a long-term investment. Generally, the longer you keep your contributions invested, the more likely your fund will grow in value.
For this reason, the earlier that you start saving for retirement the better. You will have more time to make contributions and more time for your fund to grow in value.
Types of Pension Plans:
- Personal Pension
- PRSA (Personal Retirement Savings Account)
- Company/Executive Pension
- AVCs (Additional Voluntary Contributions)
- Pension Buy-Out-Bonds/Personal Retirement Bonds
- Approved Retirement Funds (ARF) & Approved Minimum Retirement Funds (AMRF)-Post Retirement
- Annuity-Post Retirement
Please contact me to discuss the most suitable pension plan for you.
