LIMERICK (HEAD OFFICE) +35361 518365       DUBLIN +3531 9081500| CLONMEL +35352 6148840

info@metisireland.ie

Recently we have had a number of prospective clients approach us looking to draw down their pension benefits as they are due to turn 60 in the near future. Traditionally in our industry this was a very straight forward process. A client would sign a retirement claim form, send in some proof of age and ID and within a few weeks would have their tax free lump sum sitting in their bank account. Meanwhile their financial adviser would have been paid a decent fee for carrying out this transaction, while giving little or no advice.

 

pension-piggies

At Metis Ireland we have a very different approach. Firstly, we ask our clients some questions about

their own lifestyle to get an idea of what their

financial goals are. Secondly we ask if they have

any other sources of income, whether it be rent,

civil servants pension or if they are still working.

Finally we discuss any other non-pension investments they had such as money on deposit.

 

When we dug a little deeper with all of these clients one thing we realised is that they had no urgent need to access their pension right away. They had just been told that when they turned 60 they could get tax free cash and they should take this straight away.

 

The Metis Ireland house view is that you should always draw down on non-pension savings first for the following reasons:

 

  1. Growth on personal Investments may be subject to DIRT or Exit Tax at 41% or Capital Gains tax at 33%, whilst growth within your pension fund is tax free. By drawing down on your savings that are already taxable you allow your pension to accumulate much faster.

 

  1. You do not pay Income tax on your pension benefits until you draw them down so by deferring your pension you are also deferring any potential tax liability. You only pay tax on the growth on your non pension investments and by drawing down on these first you do not pay income tax on the initial sum invested.

 

  1. You are entitled to 25% of your pension fund as a lump sum at retirement. By deferring your benefits and letting your fund continue to grow for longer you may be entitled to 25% lump sum of a much bigger fund.

 

  1. After taking your lump at 60 you will most likely transfer your remaining fund to an Approved Retirement Fund (ARF) or Annuity. Payments from these products are subject to Income Tax, USC and PRSI. However, you are not subject to PRSI after age 66, so again by deferring your pension benefits until then you could save up to 6 years of PRSI payments.

 

  1. If you die while your fund is in a personal pension, 100% of that fund is transferred to your estate and can be received by your spouse tax free. If you have an ARF, your spouse can step into your shoes and take withdrawals from the ARF, however these are taxable. If you have gone the annuity route your estate might not get anything depending on what guarantee period applies.

 

Of course the most important part of this process is that we actually ask the right questions when we meet clients. If we can’t identify what their financial goals are or if they have other sources of income, we can’t give the most suitable advice to a client.

 

Have you asked your advisers what you should do with your pension at age 60?

 

Cian Callaghan
Head of Operations and Financial Plannin

 

 

Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland. All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.