Q I see the Authorities’s new auto-enrolment pension is because of begin in early 2024. I perceive that underneath that plan, contributions paid by staff can be matched by their employers and that the State may even add a top-up to the cash paid into the pension pot. I’ve been paying into an organization pension scheme for the final ten years – and my boss doesn’t pay any employer contributions into that scheme. Provided that employer contributions can be paid underneath the auto-enrolment scheme, when auto-enrolment kicks in, wouldn’t it be a greater concept for me to go away my work pension scheme and be a part of the auto-enrolment scheme as an alternative? Rose, Co Donegal
A The auto-enrolment system is most welcome on condition that roughly one third of staff at the moment would not have supplementary pension financial savings exterior of the State pension. The ultimate design of the auto-enrolment scheme has not been finalised and it will likely be attention-grabbing to see the way it operates alongside the corporate pension scheme which your present employer sponsors – notably in relation to tax reduction, contribution ranges and the funding choices obtainable.
Underneath the deliberate auto-enrolment system, the State will provide a subsidy of €1 for each €3 paid by the worker – which is the equal of getting tax reduction at a fee of 25pc. (The State subsidy is because of be paid on as much as a most of €80,000 of earnings.) Underneath the corporate pension scheme that you simply’re at the moment paying into to, you’re receiving revenue tax reduction in your pension contributions on the marginal fee of both 20pc or 40pc. So the auto-enrolment State subsidy can be extra advantageous than the tax reduction you’re at the moment getting in your pension contributions into your work pension scheme in case you obtain revenue tax reduction on the fee of 20pc – however not in case you obtain revenue tax reduction on the fee of 40pc.
Underneath the deliberate auto-enrolment scheme, preliminary mixed worker and employer contribution charges in 2024 for an worker incomes as much as €80,000 will begin at 3pc of earnings – rising to 12pc in 2034. This inflexible contribution construction, coupled with the truth that staff is not going to be ready to pay extra contributions, might make the auto-enrolment system much less versatile and unattractive from a typical pension scheme member’s perspective.
You need to proceed contributing into your work pension and assess the place additional after full particulars of auto-enrolment materialise.
My PRSA after becoming a member of work pension with new job
Q I’ve a Private Retirement Financial savings Account (PRSA) which I arrange myself about ten years in the past and into which I’ve been saving all that point. I’ve simply taken up a brand new job – by way of which I’ve joined an outlined profit pension scheme. Can I proceed contributing into my PRSA? Ian, Co Wexford
A As you’re becoming a member of a company-sponsored pension, your contributions into your present PRSA might want to stop. Going ahead, chances are you’ll want to make pension contributions along with your regular contributions to your work pension scheme. Such contributions are generally known as Extra Voluntary Contributions (AVCs) and these may be paid into both your individual AVC PRSA (in case you can not make AVC’s by way of your employer’s pension scheme) or your new employer’s AVC scheme (in case your employer has arrange an AVC scheme).
While you at the moment have a PRSA in place, an AVC PRSA is a wholly separate contract which is linked to your individual pension contributions out of your new job solely. Your present PRSA can’t be transformed to change into an AVC PRSA. In case your employer has an AVC scheme, tax reduction by yourself contributions into that scheme can now be facilitated by way of your employer’s payroll – so not like your present PRSA, there ought to be no want so that you can reclaim tax reduction in your contributions your self.
There are some essential factors to bear in mind in relation to any PRSAs you have got. Firstly, you need to evaluate your PRSA yearly. Your PRSA supplier is obliged underneath laws to ship you a press release each six months. It will let you evaluate how the PRSA is performing and whether or not any funding switches are required.
You might have the choice to switch your present PRSA into your new employer’s AVC scheme (if it has one). There are professionals and cons to transferring your PRSA so it is very important get impartial monetary recommendation earlier than doing so.
Choices to be made in run-up to retirement
Q I’m planning to retire in two years time after I’m 65. I’ve an organization pension which I’ve been saving into for the final 35 years – in addition to a few pensions I saved into for a couple of years within the early phases of my profession. What choices will I have to make round retirement funds as I method retirement? Alan, Co Louth
A There are a selection of essential areas which you need to concentrate on as you method retirement.
One is cashflow planning – the place you forecast your revenue and expenditure in addition to your belongings, taxes and liabilities all through your lifetime. Contemplate getting some impartial monetary recommendation to get a practical indication of the sum of money you will want in retirement.
One other is funding planning – the place you identify how one can make investments present belongings and future financial savings primarily based in your monetary objectives, your angle in direction of threat and your present monetary place. Once more, impartial monetary recommendation can be helpful right here.
Pension planning – the place you evaluate your pension and make choices round it, relying in your circumstances – can also be essential. By way of particular choices that you will want to make round you pension, evaluate whether or not you’re maximizing your pension contributions and extra importantly, contemplate the place your retirement account is invested. Pension funds have been extraordinarily risky within the year-to-date, and you need to make sure the fund you’re invested in is appropriate for a person with two years to go to retirement.
Tax planning – the place you develop a plan geared toward minimising the quantity of tax payable in your retirement, whereas complying with all of the tax laws – is one other essential space.
So too is property planning – notably round how one can maximise the worth of your property by lowering taxes and different bills.
Social welfare must also be thought of as you will want to guage prematurely whether or not or not you are on monitor to obtain social welfare advantages whenever you change into entitled to them in retirement.
Lastly, put collectively a listing of your bills – together with day-to-day bills (equivalent to meals and electrical energy) and once-off prices (equivalent to insurance coverage if paid yearly, and holidays). This offers you an concept of the prices that you want to put together for as you method retirement. Contemplate too in case you ought to put aside some cash to cowl long-term care within the occasion that you simply would possibly require such care in previous age.
