Drumgoole Financial Services

Saved Smart… what’s next?

Potential options for a €200,000 Pension
Last month we looked at how you can potentially turn €120,000 of savings into a pot of €200,000. Our sample subject took the advice provided and placed €40,000 of their salary into a pension for 5 years, between the ages of 60-65, to build up a pension of €200,000. They received tax-relief of 40% on these pension contributions. So, what can they now do with their pension savings?

There are different potential retirement options available in what is called an Occupational Pension plan. For the purposes of keeping this simple, I will discuss the retirement options that are available in most pension arrangements. The options for our sample retiree will be as follows:
Value at 65: €200,000
Tax-Free Lump Sum: 25% of the fund = €50,000
Balance of Funds: €150,000 – can be used to provide a level of income for life in one of the following two ways:

You place your €150,000 with a pension company and they pay you a guaranteed income for the rest of your life. At the moment, a 65-year-old may get an income of roughly €5,325 per year (subject to income tax)
The biggest pro of this option is that you are not reliant on fund performance. The biggest drawback is that once you have purchased the pension, you cannot make any changes and once you pass away it ceases.

(Approved Retirement Fund / Approved Minimum Retirement Fund)
This is where you reinvest your €150,000 and draw an income out of the proceeds.
The biggest benefit is the flexibility (you can take different amounts when you want) and this will pass onto your estate/partner upon your death.
The biggest downside is that you can theoretically draw it all down and/or the fund value does not perform as well to make back what you take out of it.

“I pay income tax on my pension when I retire?!”.
This is something I hear from time to time, but remember, you will have had tax relief when you put money into your pension, you gained tax-free growth on your savings, and you received 25% of the fund tax-free at retirement.
Not just that, at retirement you are earning less income, with a sole pension of €150,000 and only the state pension. A lot of individuals (and couples) will pay little to no income tax on their €150,000.

Have a question? #JustCallOran on 087 6686624 or visit www.drumgoolebrokerage.ie §

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