Why do pensions still make sense ?
- Income Tax Relief is still available on contributions at your marginal income tax rate
- Life expectancy is increasing meaning longer retirements with reduced incomes
- The State pension age is increasing
- At retirement you will be entitled to some of your fund as a Tax Free Retirement Lump Sum, subject to Revenue Restrictions
- There is uncertainly around the levels of future State Pension provision
What is the level of Income Tax Relief on Pension Contributions ?
Tax relief is available on up to 40% of the contribution for a top rate tax payer, or 20% for a standard rate tax payer.
What is the Tax Free Retirement Lump Sum ?
Tax free retirement lump sums are available when one is taking retirement benefits . In most cases you can take 25% of your pension fund as a retirement lump tax free. The maximum total tax-free amount is €200,000, with up to a further €300,000 available at 20% subject to a maximum of 25% of your total fund.
An Approved Retirement Fund (ARF) is a special investment fund which can give flexibility in terms of how you use your retirement fund. With an ARF you re-invest your retirement fund after tax-free cash and take the money out as you need it, subject to income tax. The Harvest ARF allows you to take control over where these funds are invested. An ARF is provided by a Qualifying Fund Manager (QFM) such as Harvest Financial Services Limited (HFS).
The Harvest Liberator Pension, a Small Self-Administered Scheme , is a self-administered occupational pension trust. This is a tax-efficient company pension plan. It differs from traditional pension plans provided by insurance companies as it is self-administered, which allows you to control your contributions and investments. Harvest Trustees Limited (HTL) is appointed Pensioneer Trustee of your trust, as approved by the Revenue Commissioners, and you are a co-trustee. HTL has appointed Harvest Financial Services Limited (HFS) as the Registered Administrator to carry out core administration functions for the trustees.
A Personal Retirement Bond (also known as a Buy Out Bond) is an individual pension bond established in your name. You can transfer your pension benefits into the bond if you leave a company pension or if your company pension scheme is shut down. It is usually established by the trustees of your existing pension scheme and its aim is to put you in control of your pension benefits. The value of your pension benefits at the date you leave your current pension scheme will be transferred into the PRB. A self administered PRB allows you to have control over where these funds are invested.
An Advisory PRSA is a highly flexible long-term retirement contract designed to allow you to save for your retirement in a manner that suits you. The Advisory PRSA is a Non-Standard PRSA and is an alternative to the Standard PRSA offered in the market with the benefit of offering you flexibility on investment options. A PRSA is a tax efficient investment account which enables you save for your retirement in a flexible manner. It allows you and/or your employer to make either regular or once-off contributions which are tax deductible.
One of the key features of self-administered pension schemes is the ability to purchase property as an investment option. Your scheme can invest directly in residential and commercial property either directly or indirectly. All income and gains within pension schemes are exempt from income tax and capital gains tax so this means that the rental income on the property is not subject to income tax nor will Capital Gains Tax be payable on the sale of the property.
What are the advantages of using your pension to purchase a property ?
- Rental Income from the property is paid to the pension and is exempt from income tax
- The purchase costs are met by the pension fund ie solicitors, management fees etc
- When you sell the property there is no Capital Gains Tax on the sale
- You can purchase either residential or commercial property through your pension
- Income tax relief on employee and employer contributions remains at the higher rate of tax
- On retirement, you can take 25 % of the value of the pension fund as a lump sum, of which €200,000 is tax free.
- Borrowing can be used if available
This marketing information has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and / or capacity for loss of any particular person. It should not be relied upon to make investment decisions.
The particular tax treatment contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at November 2018. Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should take such independent tax advice as you deem appropriate.