The Financial Column
Welcome to the Financial Column in association with award winning local company Money Plus
Q. I am a self-employed businessman aged 52. I have two existing personal pension policies currently worth around €72,000. My current salary is €65,000. I am currently contributing €300 per month to my existing personal pension. What is the maximum amount I can currently pay into my pension fund to get the most tax relief ?
Can you remind me what are my options if I decide to cash in my pension fund when I reach 60 ?
1) You are currently contributing €3,600 per annum into your personal pension. Based on your salary your taxable income is subject to tax at 40%. Therefore you should receive tax relief at this rate on your existing contribution of €1,440 per annum. This means that the net cost of your existing pension contribution is €2,160 or €180 per month.
The maximum amount which you can contribute per year to a personal pension and receive full tax relief on your contributions is determined by a) your salary, and b) your age.
At 52 years of age you could contribute 30% per annum of your salary in personal pension contributions with full tax relief. On your salary of €65,000 this means you could contribute up to €19,500 per annum (€1,625 per month). The net cost on a monthly basis after tax relief for you would be €975 per month.
You can further increase contributions up to 35% of salary from age 55 to 59 and to 40% at age 60 and over.
You have a great opportunity to increase your existing pension contributions and benefit from the tax relief up to the maximum limits above and within a level which you can afford.I recommend that you consider doing this as soon as possible.
2) There are a number of options available to you in relation to your (personal) pension fund once you reach the age of 60:
You can encash your pension fund at 60. Under current legislation the earliest that an individual with a personal pension fund can access this is at 60 (unless in the case of ill health). If you decide to do you can take 25% of the pension fund as a tax free lump sum, up to a maximum of €200,000.
With the balance of your pension fund, you can either :
Buy an annuity (income for life) from one of the insurance companies or
Invest the balance in an Approved Retirement Fund (ARF) which you own and can access. However, if you do not have a separate pension income of €12,700 per annum, then the first €63,500 of the balance must be invested in an Approved Minimum Retirement Fund (AMRF). There is no access to the capital in the AMRF allowed until you are 75.
You don’t have to cash in your pension fund at age 60 and you can continue to contribute to your pension until you decide to encash it. You will continue to receive tax relief on future contributions and any growth or return earned will not be subject to tax while it remains invested in your pension fund. You must access your pension fund by the time you reach 75 years of age.
For advice on retirement planning please consult Belinda McCauley at Money Plus, your local independent financial broker. Belinda and her colleagues at Money Plus, Bridge St, Boyle would be delighted to help you. Belinda can be contacted at 071-9194000/086-7847827 or by email: [email protected].