One of the most important investments that you will likely ever make during your life is your pension plan. Pension plans are plans that include long-terms savings that a person builds up for their retirement. This type of investment can be a long-term plan, or it can be a once-off savings plan. The amount of money that is accumulated in these types of plans are known as contributions.

Why Is It Important To Have A Pension?

If you have been working for a while, you may have wondered what your life will be like once you retire. Even though many people picture their golden years as being financially stress-free, the harsh reality is that the average person needs to save a large amount of money in order to maintain their current standard of living once they reach retirement age.

As modern medicine continues to advance, people are living longer than ever before in history. This means that most people can expect to live two to three decades after they have reached retirement age. An additional 20 to 20 years is a long time for someone to enjoy life after they have finished their career. Because they no longer have to worry about work obligations, they can replace those obligations with activities of leisure such as hobbies and enjoying time with friends and family.

Whatever a person's plans are for retirement, there is one thing they must be aware of. If they want to maintain their current lifestyle and standard of living, they must have a financial plan in place. This is one reason why workers invest part of their income into a pension plan.

Why Do You Need To Save Enough Money For Retirement?

It is also important that you take some time to determine how much you need to save when planning for retirement. You should be realistic when determining the amount.

Unfortunately, many workers make the mistake of not investing enough into their pension plan to last them for 20 to 30 years. Even though it is true that some expenses will decrease over time such as mortgage payments or utility bills, there are other expenses that may actually increase as a person gets older such as medical bills.

With that said, the earlier that a worker starts a pension plan, the longer they will have to add funds to the account. The more money that is accumulated, the better off they will be once they enter into retirement.



Pension Funds In Ireland

Pension funds in Ireland have to be established under trust. A trustee generally appoints a custodian and an investment manager to the fund. All pension schemes must be registered with the Pension Board.

Employee and employer contributions into these funds are eligible for tax relief. The tax relief can be up to 15% of a worker's salary if they are younger than 30 years old.

Maximum contribution amounts that are affected by tax relief tend to increase as a person gets older. The contributions can receive up to 40% tax relief by the time a worker reaches the age of 60.

All investment income that is included in the pension fund is considered tax-free as well. Any income tax is payable once the pension is paid out to the worker.

Just as in the United Kingdom, pensions in Ireland are typically invested in equity. As a result, these pension plans have some of the highest equity investment ratio in all of Europe.



State Pension

With a State Pension Plan, the first thing that workers will need to be aware of is the age at which they will be eligible for these benefits. For example, in 2014, the minimum retirement age to receive State Pension payable was 66. However, it is expected to go up to 67 in 2021, and 68 by 2028.

So, what is a State Pension Plan? The State Pension Plan, also known as a Contributory Plan, is available for those who meet the above mentioned age requirements, and have also paid enough into the Irish social insurance contributions.

This type of pension plan is not means-tested. This means that a person can have other sources of income and still receive a State Pension.

Keep in mind, the State Pension is taxable, but if it a person's only source of income, they may not have to pay taxes on it.

Workers should also know that they will also continue to receive their Irish State Pension after Brexit as they always have. UK and Irish citizens who are living in Ireland will still be able to receive the benefits from their social insurance contributions that were made when they worked in the UK.

There is also a Non-Contributory State Pension Plan that was designed for those who do not qualify for the Contributory Plan. This plan is available for those who are 66 and older. /p>

In order to receive a Non-Contributory State Pension Plan, the person must be a habitual resident, and they must also pass a means test. The means test is used to evaluate:

  • The person's cash income
  • Any capital - exception is a house
  • Income proceeds from personal used property

Occupational Pensions

Almost all of the major employers in Ireland offer a type of pension scheme. It has been estimated that over 40% of the workforce in Ireland will be expecting to get occupational retirement benefits, along with their State Pension, once they retire.

In 2009, the Irish Pension Board stated that over 580,000 members who were a part of DB (defined benefit) plans. Over 260,000 members were in the DC (defined contribution) plans.

The following are some of the funding vehicles that have been legally recongised. These funding vehicles have also attracted major tax benefits:

  • Qualified pension funds (founded under trust law)
  • Personal Retirement Savings Accounts (PRSAs)
  • Retirement Annuity Contracts (RACs)

PRSAs are inexpensive pension products that have fixed charges. They are based on the DC (defined contribution) pension plans.

Workers who are in their 20s and 30s should begin to establish their pension funds with small amounts and gradually increase the amount invested. For those who are over the age of 40, they will need to commit to saving more money so they can have a comfortable life in retirement.