Pensions

One of the most tax-efficient ways to save.

Pensions are on the of the most attractive and tax-efficient forms of savings, because employee contributions receive generous income tax and P.R.S.I. relief. Pension schemes do not pay income or capital gains tax on investment return, while part of your retirement benefit may be paid as a tax-free cash lump sum. Tax efficient pension plans are also available for the self employed and those in non-pensionable employment.

Some of the benefits have come through with in the last five years as successive Finance Acts improved tax allowances for savers in a bid to encourage us to take more responsibility for our financial future by increasing levels of pension cover. The Finance Act 1000 introduced significant changes to both the tax rules applying to pension contributions by self-employed people and employees without a company pension and to the options available at time of retirement. The Finance Act 2002 built on these improvements by offering investment inducements to people in occupational pensions also.

In the past personal pension holders could pay up to 15% only of their gross salary into a pension fund without paying tax.

Employees in occupational schemes could similarly pay only 15% of gross earnings in Additional Voluntary Contributions, (A.V.C.s) without incurring a tax bill. Lt meant that people coming late to adequate pension provision with some spare cash were being penalised for attempting to provide for their future.

Since 1999 this trend is now reversed, with latecomers helped rather than hindered. Now you can pay close to one third of your gross salary into a pension – either personal or occupational fund without tax liability, depending on age,

Self-employed people have also been given more control in deciding how much they can contribute to a pension fund. They now have until October 31^st of the following year in which they incur tax to make a final tax return to the revenue.

Knowing your tax liability gives you choice of topping up the pension fund. If you are a proprietary director of a company, you also have more pension options. Even if you stop contributing to your pension fund you can allow it to accumulate until age 75.

However, should you draw down your 25 per cent tax-free lump sum the fund cannot continue to accumulate. Nor is it compulsory to buy an annuity with you lump sum as was the case in the past.

Now you could cash in the initial fund, take 25% tax free and pay income tax on the remainder.

Alternatively, you can continue your investment by transferring capital to a new-style Approved Retirement Fund (ARF) – or discuss other options with us.