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  • Donald P McKenna

Why having a pension plan is not a luxury

Talk of Pensions is in the air

Firstly, there is the seemingly never-ending debate about the issue of the Old Age Pension and the increase in the age from which it will become available. It is a fact that, firstly, as a population we are living longer and, secondly, we have an aging population. Combined these have the impact of creating a severe financial headache in regard to the sustainability of the current situation and no doubt government will have to make tough decisions in the near future.

This is also the time of year when we are faced with tax return deadlines and so the matter of making a Pension Contribution to your Pension Plan to reduce your potential tax bill arises. The 31st October deadline has obviously passed but if you do your return online using ROS you have until 17th Novemeber. This offers the opportunity to boost your own Pension Pot so that you lessen your dependence on the State Pension regardless of what government decisions are made.

Tax Benefits There are three unique tax benefits that apply to a Revenue Approved Pension Plan that are not available elsewhere:

  • Tax Relief on Contributions - The contributions you make to your Pension Plan, within certain limits, are allowed in full as an expense against your income tax. In simple terms, for a top rate taxpayer, each €1000 contribution to your Plan reduces your tax bill by €400!!

  • Tax Free Growth - The investment growth achieved by your contribution is allowed grow completely tax free. This compares with most personal investment vehicles such as deposit accounts and personal savings accounts where any growth is subject to a tax charge as high as 41%

  • Tax Free Lump Sum on Retirement - On reaching retirement age you can take a large slice of your accumulated Pension Plan as a tax-free lump sum. This can be 25% of the value or up to 1.5 times your taxable income, depending on the type of Pension Plan you have.

Having a Pension Plan is not a luxury We all have a general idea of what we would like to do in retirement, whether it’s playing golf, travelling, or taking up a hobby. However, in order to make those plans a reality we need to ensure we have the financial resources necessary. Relying solely on the State Pension certainly won’t do the business.

While your retirement may seem like a long way off, the sooner you start saving for it the better. If you are a member of an employer sponsored Pension Plan that may very well meet your needs but again you must ask if this is so or indeed consider whether you will stay with the same employer right through your working life.

Take Advice Taking all things into consideration a good key to good pension planning is to have access to good advice.

Should you be making a Pension Contribution now? Should you be reviewing your Retirement goals?

If you’d like to have a chat about the options available to you and planning your financial future just get in touch.

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