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Pensions explained

Starting a pension is not as difficult as it sounds.                         
                        
Start as early as you can. Most pensions are flexible and let you                         
choose the most suitable way to invest your money so it has the chance to grow.                         
And you can get tax relief every time you pay money in.

Progress    

Who pays in?

Here's our guide to how pensions work.

The government wants us all to save for retirement so the taxman gives tax relief on payments you make to your pension.

It's the next best thing to free money.

What the taxman gives in tax relief reduces the cost of your pension.

The taxman

If you are a 20% tax payer, for every €200 you pay into your pension, you get €40 back from the taxman as tax relief so the "net" cost to you is €160.

You

Your pension is flexible - you decide how much you want to pay in. You can change this amount at any time and also pay in a lump sum if you want to.

What happens to the money?

Your investments over time

Time in years

Your pension fund

The earlier you start, the more payments you'll build up in your pension pot and the more opportunity this money has to grow.

The value of your pension pot depends on the value of your investments. During their lifetime they may rise and fall, if the stock market does. But you should focus on the long term. What matters is the value of your pension pot when you retire.

It's easy to keep track of your pension plan - you get annual statements automatically and you can request additional statements whenever you want.

You're in control of your pension pot – how it performs depends on how much you put in, where it's invested and how much risk you're comfortable taking with it. Remember, your pension is flexible and you can adjust the amount you pay in at any time.

What happens when I retire?

In general you can access your benefits from age 60, although most people leave it until they stop work.

You can take a cash lump sum of up to 25% of your pension fund and the first €200,000 is tax free.

You need to turn the rest into an income you can live off - this will be taxed.

 

What happens when I retire?

Buy an annuity

Rather than hope the money lasts for as long as you live, you can use the rest of your pension pot to buy an income.

This is called an annuity. You get a guaranteed income for the rest of your life, which is taxed. The amount you get each month or year is based on a number of factors, such as your life expectancy.

 

What happens when I retire?

Income drawdown

ARF

Approved Retirement Funds let you keep your pension pot invested so that it has the chance to grow.

You can take out money regularly to live on, on which you pay income tax.

How long the pension pot lasts depends on how much you take out - and how your investments perform.

 

To sum up...

  • Every time you pay into your pension the taxman pays in at least 20% too (tax relief).
  • Your money is invested until you retire, so that it has the chance to grow.
  • You decide how it's invested - so you're in control.
  • Your pension is flexible, you decide how much you pay in and you can change this at any time.
  • The earlier you start, the more time it has to grow, and the more tax relief you get.
  • The final value of your pension pot is the sum of all the money paid in (minus charges) plus any growth your investments have achieved.
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As with most things there are exceptions and limits. Laws and Tax rules may change, so we recommend that you speak to your financial adviser.

"Can I get tax relief on my pension contributions?"

 

 

The amount of tax relief on your personal contributions to all pension arrangements is based on your age and your earnings.

 

Your age   
% of net relevant earnings*
Under 30
15%
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60 or over 40%

* for the 2016 tax year, net relevant earnings are subject to a ceiling of €115,000 for the purpose of calculating tax relief.

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