Pensions

There are many different pension products available and finding the right one that suits your needs and operates in the most tax efficient way can be difficult but here at Smart Financial, our goal is to set up your pension is the most suitable way to meet your needs.

There are many different pensions available:

Personal Pension Plan “PPP”

A PPP is a long-term investment that aims to help you build up a pot of money that you can use to provide an income for yourself when you retire.

The value of the benefits payable to you depends on the level of contributions you have paid and the investment return achieved from the funds in your personal pension plan.

Personal Retirement Savings Account “PRSA”

A PRSA is a long-term investment that aims to help you build up a pot of money that you can use to provide an income for yourself when you retire. Both the holder and there employer may make contributions into the PRSA.

The value of the benefits payable to you depends on the level of contributions you have paid and the investment return achieved from the funds in your PRSA.

Personal Retirement Bond “PRB”

A PRB is also sometimes known as a Buy-Out-Bond. It is used by the trustees of a pension scheme to buy retirement benefits for former members of its pension scheme.

A PRB is a personal policy in the name of the PRB holder. This can have many advantages over transferring into a new occupational pension scheme in your new employment.

When a member leaves a pension scheme, the value of their fund when they leave the pension scheme is invested in the bond. When they retire, they can then use the proceeds of the PRB to provide retirement benefits.

Occupational Pension Scheme

An Occupational Pension which is more commonly known as a Company Pension is setup under a Trust by an employer (company or individual) to provide retirement and/or death benefits for employees (including Directors) and has to be exempt approved by the Revenue. Company Pension arrangements can include any number of members from one upwards.

There are two basic types of occupational schemes, defined benefit and defined contribution.

1. Defined Benefit

Defined benefit schemes are also called “final salary schemes”. Employees or their dependants are paid a pension in accordance with rules generally based on salary at the time of retirement or an average of the last years, together with the number of years’ service.

The rate of the employee's contribution is also defined. In contrast, the final cost to the employer is not defined. Future salaries, investment returns and life expectancy have a direct impact on costs.

The existing trend is an irreversible move away from defined benefit is accelerating. By guaranteeing employees a pension related to salary on or near the retirement date, employers take the risk of underfunding.

2. Defined Contribution

Defined contribution schemes are also known as “money purchase schemes”. The employee's benefit is determined solely by reference to the scheme contributions by the employer and by the individual and the investment returns earned on those contributions.

Both the rate of the employer's and member's contributions are fixed. The pay-out is not guaranteed and is dependent on the return achieved from the funds where contributions are invested. Nothing else is guaranteed and the outcome for each member will depend upon the return achieved on his fund of money and the investment conditions prevailing when it becomes necessary to convert the fund into a pension on retirement.

In periods of long bull markets, these schemes can be very rewarding and conversely, when there is a sustained downturn. The employee can have the flexibility of choosing how the fund is used at the time of retirement.

In these schemes, the contributions being made by and for each member are individually tracked. An employee can know at any time what share of the pension fund he/she has. An employee who is given details of this entitlement under a defined contribution scheme will receive a notice of value but estimates of future value are not allowed.

Approved Retirement Fund “ARF”

Once you reach retirement, you may be able to choose what to do with your retirement fund depending on your individual circumstances. One of these options may be an Approved Minimum Retirement Fund “AMRF” or an Approved Retirement Fund “ARF”.

How do they work? With AMRFs and ARFs, you re-invest your pension fund and take the money out when you need it.

In order to take out an Approved Retirement Fund, you must have a guaranteed income for life of €12,700 per year, from other sources than your ARF investment.

If you do not have a guaranteed income of €12,700 per annum, you must invest the first €63,500 of your pension fund into an Approved Minimum Retirement Fund (AMRF). Once you have invested in an AMRF, then you can put any remainder into an ARF.

Annuity

An annuity is what many people commonly refer to as a pension. The most common option at retirement is to use your accumulated pension fund to buy an annuity from an insurance company.

This is a guaranteed income for the rest of your life. The amount of income you receive will be based on, among other things, your life expectancy at retirement (so will vary by retirement age) and the size of your retirement fund. Due to the annuity rate been so low, less and less people are purchasing them at retirement and choosing an Approved Retirement Fund “ARF” option.

Contact us today for more information on pensions.

Contact Us Today
design - B[]X