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Why should I have a pension?

1. What will the state pension be in the future?

The State Pension (Contributory) personal rate is currently €230.30 a week.

  • Demographic changes in Ireland and across Europe will put pressure on government finances as the cost of state pensions and health care for the elderly increase. Currently in Ireland there are 6 adults of working age for every pensioner, but this ratio is predicted to change to 3 to 1 by 2060. (Source: National Pensions Framework, June 2012)

The National Pensions Reserve Fund was established to help meet costs of social welfare and public service pensions from 2025, but this is now being used to make investment in credit institutions and Irish Government securities as directed by the Minister for Finance.

We can’t be sure what the state pension, medical card support or other benefits will be when you retire. If you have your own pension then you may not need to worry too much.

2. The State Pension age is increasing

With effect from January 2014 the State Pension age increased and will increase again in the coming %years.
Date State pension age Year you were born – reaching the State Pension Age
2014 to 2020 Increased to age 66 1948 to 1954
2021 to 2027 Increased to age 67 1955 to 1960
2028 onwards Increased to age 68 1961 or later


3. Increasing life expectancyIf you retire in 2028 at age 65 will you have enough money to live for 3 years before you start receiving the State Pension? If you have your own pension then you may not need to worry.

As a nation we are living longer. Life expectancy for those born in Ireland is now 78 years for males and 82 for females (Source: CSO 2013). You could live between 20 and 30 years in retirement. Living longer is a good thing but you need to take this into consideration when planning for retirement. Are you going to save more now or live on less money in retirement?

4. Income tax relief on your pension contributions

For a pension contribution of €100 at a tax rate of 41%, the real cost to you may be only €59.
€100
Tax relief €41 You pay €59
For a pension contribution of €100 at a tax rate of 20%, the real cost to you may be only €80.
€100
Tax relief €20 You pay €80

 

Please note that pension income in retirement is subject to income tax, the Universal Social Charge (USC), PRSI (if applicable) and any other taxes or government levies on any withdrawals you make.

There are limits to the amount of tax relief available to you based on your age when you are making the contribution. As you are in your 30’s the income tax relief available to you is 20%. The limits for Personal Retirement Savings Account (PRSA’s) are below:

Tax Relief by Age Bracket
Under 30: 30 to 39: 40 to 49: 50 to 54: 55 to 59: 60 and over:
15% 20% 25% 30% 35% 40%

 

Tax relief is not guaranteed and is subject to an earnings cap of €115,000. To claim tax relief, you can apply to your Inspector of Taxes to adjust your tax credits. Contributions deducted from salary will receive immediate tax relief. If you are self-employed or a proprietary director, you must include your pension contributions in your online self -assessment tax returns in order to get income tax relief. To be eligible to claim income tax relief, your income must be taxable under Schedule E or Schedule D (case I or II).

 

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