No pension left behind
Have you left a pension behind –
A very relevant topic (not very exciting granted) but it is interesting how history has repeated itself. I met with a father and his son recently. The farther was close to retirement and we were tracking down his UK pension benefits (funds) he had built up in the 1980/90’s and we were moving these back to Ireland to facilitate his retirement. He returned to Ireland in main because of the opportunities presented by the Celtic tiger. His son left Ireland late 2009 after the Celtic tiger had disappeared, working in Canada first then Australia before returning home.
In short they had current and old pension funds built up in Ireland through different jobs, along with overseas pension funds that needing tidying up.
Pension rules differ significantly from country to country but as in the above case we were able to gather these pension funds together by contacting the administrator of the pension schemes and getting the transfer documents sent to us.
Transferring my previous employment pension in Ireland.
When leaving employment with one employer to a new employer in Ireland, one option is to transfer your built up pension fund into a Personal Retirement Bond (PRB). A PRB is a personal policy in your name. When you retire, you can then use the proceeds of the PRB to provide retirement benefits.
Transferring my Pension from the UNITED KINGDOM
A person who is born outside the UK having built up pension savings in an approved UK pension scheme can move their pension offshore if they want to retire outside the UK. For those wishing to transfer a private pension from a registered UK scheme, the UK allows transfers to overseas schemes with ‘QROPS’ status (Qualifying Recognis AUSTRALIA ed Overseas Pension Scheme). Requests for transfers may be assessed for tax purposes by the scheme administrator and by the UK’s tax authorities.
If the scheme to which you are considering transferring your pension savings is not a QROPS, your UK pension scheme may refuse to make the transfer, or you may have to pay at least 40% tax on the transfer.
AUSTRALIA
Irish emigrants permanently moving back from Australia can apply to have pension contributions returned providing they have not become citizens/permanent residents of Australia.
Irish emigrants who have worked in Australia as ‘temporary residents’ having entered Australia on a temporary visa and paid in to the Australian ‘Superannuation’(pension) system can apply for a ‘departing super payment’ (DASP). You must have held a temporary visa under the Migration Act 1958 (except visas under subclasses 405 and 410) to be eligible to apply for the DASP.
Australia’s DASP payments are made to the individuals to whom the application relates and do not require that the payment be transferred to an Irish pension scheme. Australian withholding tax will apply to departing superannuation payments.
CANADA
In order to gain transparency regarding the regulations applying to pension transfers or accessing pension funds in Canada, as the issue is managed federally on a state by state basis rather than nationally, the pension owner should in the first instance contact the financial institution/administrators responsible for their pension savings or ‘locked-in account’.
Effective from January 1, 2008, a ‘locked-in account’ owner who is a non-resident of Canada, as determined by the Canada Revenue Agency (CRA) for the purposes of the federal Income Tax Act, may apply to unlock and withdraw all the money in his/her pension savings or ‘locked-in account’ two years after departing Canada. Applications to access savings, which may be accessed through the Financial Services Commission of the relevant province, must be completed by the owner of the savings and sent to the administrators of the pension scheme.
Canada’s federal pension legislation does not specify the manner in which the funds are to be paid, but only that they are not subject to its ‘locking-in provision’. Notwithstanding this, there may be tax implications which should be addressed to the CRA.
Individuals will require a written determination from the CRA that states they are a non-resident of Canada for the purposes of the Canadian Income Tax Act and, if applicable, written consent from a spouse or a certification that you do not have a spouse.
Now, search your memory, did any company you ever worked for in Ireland or over seas have a pension plan? Do you have several pension plans with different providers? Have you lost track of these pension plans and their valuable entitlements.
Have you moved address and these details have simply gone missing. Theoretically, your ex employer & pension companies, should notify you of your pension status each year, but most companies, don’t go above and beyond for ex-employees and non active pension plans.
Pensions – the need.
New research from the UK shows one in six people are worried they’ll need to ask their kids for money during retirement. That is astonishing when you think about the fact that actually most parents would be saying ‘what can I provide for my children? But of course it may well reverse, some may agree with this but I know from my own family situation that this can be difficult with spouses/partners given the costs of raising your own family in current times. Could you afford to support your parents and raise your own family, will your kids be able to?
It is vital you keep track and control of all your pension information so you understand what you have now and what you will need in the future to retire on. The good news is, it is possible to gain control and direct access to ‘forgotten’ pensions so you can gain clarity on your financial future. We can help you gain control by consolidating your pensions and planning for your future with confidence and peace of mind.
“Care homes, healthcare, all of those things are going to be much much more expensive.” At retirement you may be entitled to the state pension of €243.30 per week plus other pension provisions contributed to whilst working. Will these be enough?
Pension Income options
There are basically three ways you can generate an income during retirement:
1. TAX FREE LUMPSUM AT RETIREMENT
Virtually all pensions allow you to take a tax free lump sum from your pension(s) based on your salary & service or a tax free lump sum based on the % of the fund value (you have a life time pension allowance, where you can take up to €200,000 of a tax free lump sum, the balance is taxed at the standard tax rate up to €500,000)* as above restrictions apply on the amount of your pension fund you are allowed draw down as a lump sum
Suddenly you’re tempted by having this large pot of cash, so you can go out and spend it all, but of course, the pot of cash has got to last you a long time. The other issue is going to be inflation and it can erode like acid the value of what you’ve saved.
With the balance of funds after taking the tax free lump sum, you should be able to –
2. Get an annuity – or pension for life. This pays a fixed amount for life – this offers income certainty.
and/or
3. Invest in an AMRF/ARF – approved retirement funds. With this option you retain control of the fund, so the fund can form part of your estate and you can dip into the fund for income & nice treats (holidays etc..). The income is not guaranteed and you will have to manage the funds to ensure you do not run out of cash.
The big question is how much income will you really need in retirement?
It’s that age-old conundrum: How much should you save for your retirement?
Nowadays, people want to have fun in retirement: travel more, spend more time with family and friends, learn some new skills, start a business and stay active.
It’s all about having the freedom to do all the things you always wanted to do. But given longer life spans and concerns about the financial status of the State Pension, what should be your target income to fund a potentially decades-long retirement?
Can you estimate your income requirement in retirement?
In retirement, your expenditure should fall considerably as mortgages have been paid off, children have been reared and are now financially independent of you and typically pensioner’s health is good.
We believe that it is possible to determine a reasonable income requirement for your retirement needs. You need to start by making a financial plan and by answering a few important questions about the life style you want in retirement. Provided you plan ahead, estimate and project the figures in a prudent manner, you should be able to accumulate a nest egg sufficient to last you through your golden retirement years.
Next steps
I have noted 5 important steps below to get you started:
- Firstly, choose the age at which you want to retire – most people retire between age 60 – 70 but increasingly we are seeing people targeting a retirement age in their late 50’s;
- Now, decide on the level of annual income you’ll need for your retirement years. It may be wise to estimate on the high end for this number. Generally speaking, it’s reasonable to assume you’ll need about 70% – 80% of your current annual salary in order to maintain your standard of living.
- Then, gather the current market value of all your savings and investments – e.g. cash deposits, pensions, investments, rental properties etc.;
- Determine a realistic annualised investment rate of return (net of inflation and costs) on your investments between now and your chosen retirement date. A realistic annual rate of return for a stock portfolio would be in the region of 4% to 6%, however cash may only yield 1% pa. These projections are important and therefore this area needs to be discussed, as different asset types tend to produce different returns;
- Finally, estimate the value of your future State Pension benefits.
We are here to help you?
Our financial planning service can help you achieve the lifestyle you want, not only now, but
in the future based on your:
- Income
- Expenditure
- Assets
- Liabilities
- Life style
We understand that most people aren’t always as financially organised as they could be. Often new clients arrive with a bag full of paperwork and unopened envelopes. The task of designing a Financial Plan to help you achieve your goals can only be completed when we understand your priorities.
What you get is financial clarity and less worry of what your future looks like, with the peace of mind that comes with proper financial Planning & coaching based on independent unbiased advice.
So before you decide to invest, top-up your pension, buy that boat, gift your kids money or sell/buy that investment property talk to us and we will help you understand how each financial decision can impact on your current / future life.
In summary, you need to consider now how long you want to be working for, who you will be responsible for in retirement, take into account other sources of income (including the State Pension) and estimate what your future health costs could be, to come up with a clear estimate of savings needs.
Kevin O’Neill is a Qualified Financial Advisor and the Owner of O’Neill Independent Financial Consultancy, a Financial Planning practice based in Kilkenny. For more information, contact Kevin at info@planreview.ie or visit www.planreview.ie for more information.
Your future, our priority.
