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Once You’ve Retired

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Once You’ve Retired

A pension is a way of saving for your retirement. Hopefully, by the time you retire, you’ll have built up a substantial pot. At that point, you must turn it into an income. Please note that the below is a general guideline – it is important to talk to one of our Advisors to ensure you obtain advice for your particular circumstances.

  • A retirement lump sum – You can take 25% of your pension fund as a retirement lump sum. The remainder can then be invested in an Annuity or Approved Retirement Fund (ARF). You may also have the option to take a lump sum based on your salary at retirement.

You may be able to take some or all your retirement lump sum without paying any tax. Here are the numbers you need to know:

      • €200,000 is the maximum tax-free amount you can get;
      • €200,000 – €500,000 is taxed at the standard rate of income tax (20% as of January 2020);
      • > €500,000 is taxed at your marginal rate of tax – meaning income tax, the Universal Social Charge, PRSI (if applicable) and any other charges or levies (“tax’’) will also be taken.

The remainder of your fund can then be invested in an Annuity or Approved Retirement Fund (ARF).

 

  • Annuity – You can exchange your savings for a guaranteed income that will be paid out for the rest of your days.

An annuity is predictable and steady. Essentially, you buy yourself a paycheque. It is what we usually refer to as a pension. You use your pension fund to buy a retirement annuity from an insurance company. This gives you a guaranteed income for the rest of your life.

The amount of income you get will be partly based on your life expectancy at retirement so it will vary according to your age and the size of your retirement fund.

 

  • ARF – Reinvest your savings in funds similar to your pre-retirement Pension, with the intention of living off the investment and the returns it makes.

Known as an ARF – Approved Retirement Fund & AMRFs (Approved Minimum Retirement Funds), are funds in which you can invest your pension pot when you retire. They provide you with an income which you can draw down monthly or annually. These funds fluctuate in value, so you’ll have to plan carefully so that your savings last as long as you need them to.

If you don’t have a guaranteed pension of €12,700 per year or you’re under 75, you’ll have to invest €63,500 or the rest of your fund (if less) in an AMRF or use the money to buy an annuity.

An AMRF gives you limited access to your money as you can’t access any of the original amounts you invested until you reach 75. But you can withdraw any money earned from the growth of your original amount.

When you reach 75 or you confirm that you get a guaranteed pension of €12,700, your AMRF will automatically become an ARF and you will be able to make withdrawals from it whenever you want.

There are some special conditions for AMRFs related to age and guaranteed pensions. Contact our pensions experts on 1890 300 303 and find out more.

 

  • Take a taxed cash lump sum – After you take your tax-free cash, you can take all or part of the balance of your pension fund as cash and pay tax on it.

Any money that you withdraw in this way will be taxed as income at your marginal income tax rate and you may also be liable for the Universal Social Charge (USC).

 

There’s no right answer – just what’s right for you. That might depend on the value of your pension when you retire, whether you want to pass on your investment to the people you care about or the level of risk you’re open to.

Whether this is a choice you’ll be making in three months or thirty years, you’ll need to get some professional advice. So, talk to with our pensions experts on 1890 300 303 and choose the right retirement for you.

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Important Assumptions

For the purpose of determining the term over which pension contributions are made, we have assumed your birthday was exactly six months ago.

If your target retirement age is lower than the age at which the Social Welfare pension commences (age 68 if you are born on/after 01/01/1961, age 67 if born before this date but on/after 01/01/1955 and age 66 if born before 01/01/1955) the calculations allow for funding for this gap, in addition to the cost of the annuity.

You are entitled to a full Social Welfare pension of €248.30 per week as at March 2019 which is assumed to increase by 2.5% per year.

You are saving for the difference between the Social Welfare pension and your target monthly income in retirement.

We have allowed for inflation of your target monthly income of 2.5% per annum between now and your retirement date.

Any other private pension provision you may have in place has not been taken into account.

Your monthly pension contribution increases by 2.5% each year up until your retirement age and is invested in a pension plan with an annual management charge of 1% and a 5% charge on each contribution, in line with the Standard PRSA fees and charges maximum limit.

A Gross Investment Return of 4.2% per annum on your savings. This is not a forecast because the value of your investment may grow at a faster or slower rate than assumed and the value of your investment may be expected to fall from time to time as well as rise.

On retirement you purchase an annuity which escalates at 1.5% each year, has a 5-year guarantee and is payable monthly in advance. The annuity rate assumes a post retirement interest rate of 2% per annum and no spouse’s pension. The actual annuity rate will depend on the selection of dependant’s pension, guaranteed period and the escalation rate, as well as interest rates prevailing when the annuity is purchased.

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