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In today’s busy world we tend to forget that the day will arrive when we finish our working lives and can look forward to a long, well-earned retirement. What comes with this is that we no longer have the ability to earn an income. When that time comes, we will need sufficient money to maintain our lifestyle for the remainder of our lives. The Irish State Pension helps and is generous when compared to other European countries; however, it will most likely be a reduction in the income we have been earning. The State Pension is currently paid at age 66 but the Government may have plans to push the age out further.

One key goal should be to maintain our lifestyle by achieving future financial independence during the years we do work and a large part of that process can be achieved by funding a pension.

During our working lives we become accustomed to paying our bills every month. We budget and accept regular direct debits leaving our accounts. We should view our pension savings in the same way and understand that funding a pension is just as beneficial to us as paying other necessary bills. If we can budget and accept a direct debit leaving the account to invest a regular amount each month in a pension, it means that we are benefiting over the long term by investing in our future selves.

Pensions are one of the most tax-efficient vehicles available. When you pay into a pension, under current Revenue guidelines, the following benefits apply:

• §The State provides tax relief on contributions made to pension schemes; i.e. you receive tax relief at your marginal rate on your personal contributions.
• §During your savings term, all investment growth is added without a tax liability.
• §When you retire, 25% of the value of your pension savings can be paid as a tax-free lump sum (up to a limit of €200,000).
• §It is likely that you will invest the balance in an Approved Retirement Fund (ARF) and will only pay tax on the amount that you withdraw. However, you can opt for a taxable payment or income for life.
• §Married couples over the age of 65 can earn €36,000 a year without paying any income tax and the single person allowance is €18,000. The full State Contributory Pension from January 2023 is €265.30 per week; therefore, a married couple both receiving the full State Pension could potentially draw an additional amount in excess of €8,400 from personal pension provisions, without paying tax.
• §You stop paying PRSI from age 66.

We are living longer than ever before and living more active lives in retirement, so it is important for us to think ahead and plan for that 20 or 30 years of freedom by establishing a plan now in the knowledge that it will benefit you in the future. Pensions can be complex and there are various contracts available subject to your personal status which means that most people need some impartial advice before they start to contribute. If you are currently paying into a pension policy, or if you would like to enquire about starting one, I recommend that you contact your local financial advisor and request advice.

Adrian Kelly, QFA is a Qualified Financial Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on Adrian@jfl.ie.