Domestic Workers Support Group Pensions Information and Awareness 12 August 2007 Ciarán Holahan Information Unit The Pensions Board

Agenda The Pensions Board Why have a pension? Tax Relief on Personal Contributions Types of Irish Private Pensions Company Pension Schemes and Benefits Personal Pension Plans (RACs) and Benefits Personal Retirement Savings Accounts (PRSAs) and Benefits Overseas transfers Employers’ obligations Some Facts Questions and Answers

The Pensions Board Established by the Pensions Act, 1990 Main functions are set out in the Act and include –to monitor and supervise the operation of the Act and pension developments generally Board has 2 statutory roles – regulatory and policy Promoting pensions development, information and awareness is an associated support function. Board conducts the National Pensions Awareness Campaign (NPAC) on behalf of Government as recommended in the “Securing Retirement Income” report of the National Pensions Policy Initiative published in 1998

Why have a private pension?

The current state social welfare pension is € per week (or €10,884 per year) Regular income to replace earnings in retirement, or early retirement due to ill-health Lump sum benefit income for surviving dependants Tax Reliefs Income Tax and PRSI relief on employee contributions Employer contributions not taxed as BIK (unless paid to PRSA) Pension schemes do not pay income or capital gains tax on investment returns. Part of your retirement benefit may be paid as tax-free cash sum

Tax Relief on Personal Contributions The maximum contribution rate as a percentage of total pay/net relevant earnings on which you can receive tax relief is: Highest age at any time during the tax year Limit Under 30 15% % % % % 60 and over 40% Notes: Contributions will also be relieved from the PRSI and the Health Levy, if you pay these charges. For tax purposes these contributions are limited to earnings up to a maximum of €254,000 in any year.

Explanation of Tax relief benefits EXAMPLE 1 – no pension contributions Income: €100 Tax of 20% on €100:€20 Take home pay:€80 EXAMPLE 2 – pension contributions made Income:€100 Pension contribution:€20 Tax of 20% on remaining €80:€16 Take home pay:€64

Explanation of Tax relief benefits Lower tax rate (20%); Higher (42%) Higher rate tax payers will get even more benefit PAYE workers will benefit from PRSI and Health Levy relief also – up to 26% for lower tax band and 48% for higher tax band.

Company Pension Scheme (84,319 schemes with 734,699 members) (68% DB schemes and 32% DC schemes) (Fund assets in excess of 70 billion (estimate)) Personal Retirement Savings Accounts (PRSAs) (78,043 PRSAs with asset value of € m - end June 06) (78,590 employers had signed up with a PRSA provider ) Personal Pension Plans and Retirement Annuity Contracts (RACs) (In excess of 200,000 contracts – Irish Insurance Federation) Voluntary regime for supplementary pension provision Types of Irish Private Pensions

Company/Occupational Pension Schemes Also known as Occupational Pension Schemes, sponsored by employers on behalf of employees In private sector, funded arrangement set up under trust so funds held separately from company assets In public sector usually ‘pay as you go’ unless commercial public sector Occupational Pension Schemes fall into 2 categories: 1. Defined Benefit 2. Defined Contribution Operation of schemes is regulated by Pensions Act and monitored by the Pensions Board

Personal Pensions and Retirement Annuity Contracts (RACS) Self-employed or those in non-pensionable employment can take out a Personal Pension Plan aka Retirement Annuity Contract (RAC) Individual contract between individual and insurance company Can also effect a life assurance policy at some time to protect dependants These plans are not covered by Pensions Act but are regulated by Insurance Acts

Personal Retirement Savings Accounts (PRSAs) For employees, self-employed, homemakers, carers, unemployed or any other category Contract between individual and PRSA provider – Investment account holding units in investments managed by approved PRSA provider Two types – PRSA and Standard PRSA Mandatory employer access Usual tax reliefs applicable Transfers to and from other pension arrangements are facilitated as far as possible Pension Board approves PRSA products and monitors activities of PRSA providers

PRSA Benefits In general can take retirement benefit anytime from % of fund as tax-free lump sum at retirement Number of options on how to use balance 1. Purchase annuity with life assurance company, or 2. Transfer value of assets to an Approved Retirement Fund (ARF) subject to meeting the qualifying conditions. Withdraw funds as required (taxed as PAYE), or

PRSA Benefits 3. Retain funds in PRSA and opt to draw income as required (taxed as PAYE). To avail of this option, a minimum of €63,500 must be used to purchase annuity or kept in PRSA until age 75 unless minimum income of €12,700 pa 4. On death before retirement – value of fund available as death benefit payable as lump sum or pension or combination of both 5. On death after retirement benefits payable depend on options chosen at time annuity purchased and if ARF in place.

Transfers overseas Overseas transfers must be approved by Revenue Must show that transfer is to a pension Must show that pension which receives transfer is regulated. For further info call the Financial Services (Pensions) Business of the Revenue Commissioners – (01)

Employers Play your Part Access for all Employees –By law an employer must provide ALL employees with some form of access to a pension, whether they are in full-time, part-time, temporary, contract or casual employment. –All employers regardless of the size of their workforce are obliged to provide access to a Standard PRSA if those employees fall into the category of “excluded employees” (details available on the Board’s website).

Who is your employer? Is it an agency? A private family? If your employer does not provide you with a pension or access to a PRSA you may contact the PRSA Unit of the Pensions Board at (01)

Only 54.2% of men in the Irish workforce Only 47.5% of women in the Irish workforce Less than 16% of those working in the agricultural industries including farming working seasonal & part-time working in the catering & tourism industries … have private pensions The Facts

Consumer Research and Awareness Audits The key barriers to starting a pension for most people are: Can’t afford one house/holiday/car etc are the immediate priority Too young to start a pension Too complicated don’t understand pensions

Start your pension early a man retiring at 65 now can expect to live to 81 a woman retiring at 65 can expect to live to 84 ….that’s nearly 20 years in retirement !

Sample Pensions Calculator Information booklets enquiries Guide to Pensions Presentations FAQs

Summary What pension is suitable for you? Company/personal pension or PRSA? Is your employer providing you with access to a pension? Can you transfer your pension overseas if you leave Ireland?

Thank you! Any questions?????