Retirement planning is designed to accumulate funds from earned income during a client’s working life to provide a replacement income in retirement, i.e. when earned income ceases or substantially reduces. Key points to note when planning for retirement include:
Tax Relief for Individuals – Personal contributions made to pension arrangements are deductible against earned income for income tax, within certain limits, and so this reduces the cost of the contributions for the individual.
Tax Relief for Employers – Employer contributions to an employer pension scheme will provide retirement benefits for employees. These contributions are deductible for the employer for income tax/corporation tax purposes, as a business expense. Furthermore, the contributions are not treated as a benefit in kind for the employee for income tax purposes.
Tax-Free Investment Returns – All investment returns earned by Irish pension arrangements are exempt from Irish income tax, DIRT and Irish capital gains tax. This is called ‘gross roll-up’ as invested funds can ‘roll up’ or accumulate over a long period of time faster than if investment returns were taxed.
Tax-Free Lump Sum at Retirement – When a client comes to claim their retirement benefits, part of the benefits can usually be drawn as a tax-free lump sum, as either 25% of the pension fund or 1.5 times their final salary (company pension). The current limit on all pension tax-free lump sums that can be drawn is €200,000.