How Could a Pension Plan Benefit Me?

A pension plan is basically a long-term savings plan, where you save regular amounts or lump sums (called ‘contributions’) to build up a retirement fund. Next to buying your home, it is probably the most important investment you will make in your lifetime.

If you are earning an income, you will get generous tax benefits from a pension plan that you won’t get with other forms of savings.

What are the Tax Benefits?

At present, the main benefits are:

• Tax Relief on your contributions
• Tax-free investment growth; and
• Tax-free cash when you retire

* Tax reliefs outlined are those currently applying as at 08/10/2010.

The percentage of your income you can get tax relief on depends on your age. As you can see, this increases as you get older. In addition to your personal contribution rates generous employer contribution rates apply.

How Much Should I contribute?

With a Personal Pension Plan or PRSA, you have to decide how much to contribute in order to give you the income you will need when you retire. Let’s call this your ‘pension target’. The chart below shows that the older you are when you start saving, the more you need to save each year to reach your pension target.

If you are 35, earning €30,000 a year and you want a retirement income of €20,000 a year (including the State Pension), you would need to save about €5,200 a year before tax for the next 30 years.

To achieve the same benefits starting at age 45, you would need to save €8,600 a year for the next 20 years. So, it pays to start as early possible.

Do remember you get tax relief up to the limits above, so the net cost to you will be lower than the figures shown here.

This table is used for illustration purposes only.

For more information on how to get your Pension Plan started contact John or Annette.