What Is a Personal Pension Plan?

download (2)Regardless of an individual’s age, appropriate retirement planning or contributions to pension plan is quintessential to ensure a secure living after retirement. As a nation, Ireland people live for a longer period and hence the need for a realistic retirement plan cannot be understated. Apart from this, in 2014, the State Transition Pension was abolished and thereby increased the age for pension to 66. Also, the age for state pension is likely increase to 67 in the year 2021 and by 2028 it would be 68 years. Now, with all these facts in place, there isn’t a better time to begin or review one’s pension.

Personal Pension Plan – Defined

Personal pension plan refers to the individually organised pensions by the employed or self – employed people of Ireland that do not have any pension scheme. In the recent years, the rules governing personal pension plans have changed significantly. Personal pension schemes are not under the purview of the Pensions Authority anymore instead they are subject to tax law and financial services legislation (even for general law on insurance). Tax exemption can be availed for personal pension contributions while the amount of relief availed are based on the age of beneficiary. From 27th March, 2013 the beneficiaries can withdraw a maximum of 30% of the value of Additional Voluntary Contribution (AVC) done to the occupational pension schemes. This is applicable for 3 years only (till 27th March, 2016). Here are some of the rules pertaining to a Personal Pension Plan in Ireland.

Rules

Personal pension policies and insurance policies are similar in most of the cases in Ireland, with the main difference being the tax relief component. Contributions to pension schemes attract tax relief unlike insurance policies provided the required conditions are met.

Insurance companies invest the premiums paid by its customers in an investment fund. The customer cannot mobilise the funds and invest in other sources until the time of maturity. Even upon reaching the specified age, the policy holder is obliged to utilise the accumulated funds to buy an annuity. But after 1999, the policy holder is no longer obliged to buy an annuity and can mobilise between various funds with a considerable amount of flexibility.

Tax relief for Pension Contribution

For authorised personal pension agreements, an individual is eligible to avail tax relief for pension contributions. The older an individual is, more generous is the tax relief. Below is the amount qualified for tax relief based on the contributor’s age applicable since January 2011.

Age of the beneficiary

% of Amount eligible for availing tax relief

Less than 30 Years

15% of net appropriate earnings

30 – 39 Years

20%

40 – 49 Years

25%

50 – 54 Years

35%

60 and above

40%

For certain professions and occupations that include professional athletes also, the maximum amount is applicable to them as well. A limit of €115,000 on the earnings is taken into consideration. This eliminates the option of buying annuity from the proceeds of the individual’s pension policy, but not compulsory. This is not applicable generally for occupational pensions but for Additional Voluntary Contributions (AVCs) contributed by people in occupational pension schemes.