FORSYTHE FINANCIAL PLANNING

Your Retirement Options

Two of the most important factors you should consider are the way in which you wish to use your pension fund to provide an income in retirement and whether you wish to pass the balance of your fund to your dependents after your death.

What you can do with the proceeds of your pension plan depends on which employment category you fall into and the type of pension plans you currently hold.

Options at Retirement

Depending on your circumstances there are different options for you to consider at retirement. You have the option to take a tax-free lump sum and may be able to use the balance to avail of:

1. Taking a tax-free lump sum, subject to limits set by Revenue
2. A pension income for life (an Annuity)
3. An Approved Retirement Fund (ARF)
4. A taxable lump sum
5. Providing for your dependents

Normal retirement

Normal retirement age is the age at which you can retire and take your full benefits under an occupational pension scheme. It can also refer to the age you expect to retire under a personal retirement savings account (PRSA) or a personal pension. Taking benefits at normal retirement age (NRA) ensures that you have the best chance to maximise your retirement benefits and some options or guarantees under your pension arrangement may only apply at normal retirement age (NRA).

Occupational pension schemes provide benefits at the scheme’s normal retirement age, which is generally a fixed age between 60 and 70. The most typical normal retirement age is 65.

If you have a PRSA or a personal pension you have flexibility on when you take your pension benefits between 60 and 75.

There are a relatively small number of professions where Revenue will permit retirement before age 60, such as certain sports people.

Early retirement

Most pension arrangements in the private sector permit members to retire early in certain circumstances. However, the benefits you receive are likely to be lower than they would otherwise be at normal retirement age.

In occupational pension schemes, early retirement is generally possible with the employer’s and/or trustees’ consent from age 50 onwards.

Under personal retirement savings account arrangements, early retirement from employment is possible from age 50.

Under personal pension arrangements, retirement benefits can be taken from age 60.

Ill-health retirement

The onset of a permanent illness or disability that prevents you from working would have serious financial consequences.

Many pension arrangements allow members to retire due to ill health at any age in certain circumstances or incorporate some form of disability insurance.

Late retirement

Most pension arrangements in the private sector permit members to retire after normal retirement age in certain circumstances. The benefits you receive are likely to be higher than they would otherwise be at normal retirement age.

In occupational pension schemes, late retirement is generally possible with the employer’s and/or trustees’ consent.

Under personal retirement savings accounts and personal pension arrangements, retirement benefits can be taken from any age up to 75.

Lump sums

You may also be able to take an additional lump sum which is taxable.  Different rules apply to the amount of cash you can take out of a pension arrangement depending on the type of arrangement you have.

For personal pensions, personal retirement savings accounts, and occupational pension scheme members transferring to approved retirement funds (ARFs) at retirement, it is generally possible to take up to 25% of your fund as a tax-free lump sum, subject to certain Revenue limits. 

One of the important benefits often associated with pension arrangements is the availability of benefits payable on or after your death. These benefits are very important as they are the means by which you can make financial provision for dependants and beneficiaries.

Some pension arrangements provide lump sum benefits to beneficiaries in the event of a member’s death.

If you are a member of an occupational pension scheme with 20 years of service or more, you can generally choose to take a lump sum of 1.5 times your final remuneration, if higher, provided that your residual benefits are taken in the form of a pension, i.e. you do not wish to transfer residual retirement funds to an ARF.

Purchasing an annuity

The term ‘annuity’ means a series of pension payments, normally monthly, until a particular event occurs. Annuities are normally purchased by payment of a single premium to a life assurance company.
You should think about taking advice when considering your retirement options, especially when you are buying an annuity.

If you are a member of a defined benefit scheme, you may never have to make a decision about buying an annuity as the trustees will pay your pension directly or buy an annuity on your behalf.

Many pension arrangements, particularly those that invest in insurance contracts, allow an ‘open market option’. This means that you may have a choice of going to any life assurance company operating in the market, regardless of where the pension fund itself was invested. This is important as some providers of annuities are more expensive than others from time to time.

Benefits payable on death in service as a lump sum

The lump sum benefits payable depend on the type of type of pension arrangement that you may be in and other circumstances such as whether or not you have dependants.

You should find out about the benefits that would be paid in the event of your death. If no benefits are payable or if these would be insufficient to provide for your dependants, then you should look at taking out life assurance cover or increasing the level of benefits payable.

Benefits payable on death after retirement

Some pension arrangements provide pension benefits to dependants in the event of a member’s death after retirement. This may be determined by the rules of the pension arrangement or may be the result of choices made by the member at retirement.

The benefits payable depend on the type of pension arrangement that you may be in and other circumstances such as whether or not you have dependants.

Pensions on separation and divorce

If you have children or other dependents, you should also consider what would happen were you or your ex-spouse/ex-civil partner/ex-qualified cohabitant to die. Pension rights cannot be shared out without a court order – a separation agreement cannot share out pension rights.

You should bear in mind that you and your dependants may have benefit entitlements from both your own arrangement and your spouse’s/civil partner’s/qualified cohabitant’s arrangement.

For more information see ‘A Brief Guide to the Pension Provisions of the Family Law Acts’ published by the Pensions Authority