Pensions

Personal / Self Employed Pension Plans

A personal pension plan is a policy issued by either a life assurance company or an investment company. They are designed for self employed individuals, individuals not in non pensionable employment and people who may be involved in contract work on a self employed basis.

Pension Benefits

There are three main benefits in taking out a Personal Pension Plan aside from the fact it will provide you with an income in retirement. They are as follows:

• Tax Relief on Contributions
  These are subject to an annual limit set out below. Once you start your pension you will receive full tax relief on your contributions at your marginal rate.
  
  Let’s presume you have €300 per month to pay in to your pension and your marginal tax rate is 41%. This contribution of €300 is in fact only costing you €177 per month as you are receiving tax relief on your full contribution every month. This is one reason why a pension is one of the best investments you will make in your lifetime as there is no similar investment in the market which will provide this level of return.
• Investment Growth Tax–Free
  Pensions are not subject to DIRT at 23%. Unlike many investment products which are.
• Tax-Free Lump Sum
  You can take up to 25% of the accumulated fund as a tax – free lump sum.

Tax Relief Limits

Age	% of Income
<30	15%
30-39	20%
40-49	25%
50-54	30%
55-59	35%
>60	40%

The table on the left explains the tax relief limits currenly in place for Personal Pensions in Ireland.

There is a limit in relation to Net Relevant Earnings that can be taken into account for the above limits. The max Net Relevant Earnings limit for 2008 is €275,239.

PRSI and Health Levy

Personal pension contributions are:

• Deductible for PRSI and Health Levy against earnings from a non –pensionable employment, i.e. Schedule E income.
• Not deductible for PRSI and Health Levy against earnings from a self employed trade or profession, i.e. Schedule D income.

When can benefits be taken?

An individual can draw on a P.P.P at any time after age 60 but before age 75.

Retirement Benefit Options

There are three options with regard to how the balance of your accumulated fund is used:

• Use the remaining fund to purchase an annuity with a life company.
• Invest the remaining fund in an Approved Retirement Fund in your own name.
• Take the remaining fund as a taxable lump sum.

Option 2 and 3 above may be subject to first investing €63,500 of the remaining fund in an AMRF or annuity.