Understanding Pensions

Personal Pensions

A personal pension plan allows you more control than a company pension plan but generally your employer cannot contribute to it. 

Benefits of a personal pension plan include:

  • Tax relief on any contributions
  • Growth is also tax-free
  • You can decide how much to contribute - offering you more flexibility 
  • You can stop and restart contributions at no extra cost

 

Directors Pensions 

Directors Pensions are designed specifically for company directors and owners. The benefits of a Directors Pension include tax free pension contributions and a tax-free lump sum depending on length of employment, salary, and fund size upon retirement.

 

Company Pension Plans

A company pension plan is supplied by a company for its employees. There are two key types of company pension plans - "contributory" and "non-contributory".

A "non-contributory" pension plan will result in a retirement sum that contains only contributions made by your employer. A "contributory" pension plan is where employees make extra contributions to their pension on top of what their employer contributes. This will increase the sum employees will receive upon retirement. 

 

Self Administered Pension Schemes

A self-administered pension scheme allows you to personally manage your pension fund. You can decide how your pension fund is invested and can choose from a range of options including shares, bonds, and investment vehicles.

You will benefit from tax relief and tax-free growth. A self-administered pension scheme allows you a lot more flexibility and control over your finances than most other pension plans.

 

PRSA/AVC PRSA

A PRSA is a Personal Retirement Savings Account. In contrast to a personal pension plan, your employer can contribute to your PRSA. If you switch jobs your PRSA account moves with you. If you partake in a pension scheme, then you may be in a position to increase the sum you receive on retirement by making additional voluntary contributions (AVC's) through a PRSA.

 

Approved Retirement Funds - ARFs

With AMRFs and ARFs you re-invest your pension and withdraw the money when you need it. To take out an Approved Retirement Fund you must have a pension income of €12,700 per year. If you don’t have this income you must invest €63,500 of your pension into an Approved Minimum Retirement Fund or buy an Annuity of equal value. When you put this money in an AMRF or an Annuity you can no longer put any remainder into an ARF.

 

 

Pension AVCs

Additional Voluntary Contributions or AVCs are extra contributions you can make alongside your existing pension plan. 

Before considering making AVCs, you should check if it is necessary. To check you should find out what you will be entitled to when you retire. This includes benefits from your current employer and any pension benefits accumulated from previous work.

If you feel that your pension plan will not result in accumulate and adequate sum and you would like to increase it, you may be entitled to pay AVC's.