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It is important to understand that the day will arrive where we finish work and no longer have the ability to earn an income. When that time comes, we will need enough money to maintain our lifestyles for the remainder of our lives. The State Pension does help however it will often be a reduction in the income that we are used to having. One of our key goals should be to maintain our lifestyles by achieving financial independence during the years that we do work. And a large part of that process is pension funding.

Each month we pay our bills and see regular direct debits coming out of our accounts. We should view our pension funding in the same way however pension funding is much more beneficial to us than paying other bills. If we invest a certain amount each month in a Pension Policy, 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. When you pay into a pension, under current Revenue guidelines the following benefits apply:

• You get tax relief at your marginal rate on your contributions
• When you retire you get 25% of the value of your pension 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 draw down.
• Married couples over the age of 65 can earn €36,000 a year without paying any income tax and a single person can earn €18,000 a year without paying any income tax. The full state contributory pension from 2022 is €253.30 per week. For a married couple where both get the full State Pension this means that they can fund another €9,356.80 tax free income each year and a single person can fund another €4,828.40 tax free income each year.
• You stop paying PRSI from age 66.
• From the age of 70, if your income does not exceed €60,000, the maximum rate of USC is 2% and you do not pay USC on the State Pension.
• Any growth in your pension will be tax free compared to investing in a personal deposit or investment where the growth is being taxed on an ongoing basis.
• You will not be able to access the money in your pension until you retire (unless for ill health) which means that you cannot ‘dip into’ your pension money for everyday wants and needs.
• Pensions can act as a form of life cover as in most cases the full amount will pay into your estate in the event of your premature death, should you pass away before you draw the benefits down.

Pensions are complex and there are various Pension Products which means that most people need some impartial advice before they start to contribute to one. If you are currently paying into a pension policy, or if you would like to inquire about starting one, I recommend that you contact your local financial advisor and request advice.

Marie Carr MSc BBS QFA RPA SIA is a Qualified Financial Advisor, Retirement Planning Advisor and Specialist Investment Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on marie@jfl.ie.