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Help with pensions etc

  • 18-08-2019 6:12pm
    #1
    Cal04
    Registered Users, Registered Users 2 Posts: 535 ✭✭✭


    Situation, in my 40s and widowed. Cannot work right now due to a health condition, I do not receive disability etc. I have a very small pension from previous workplace.
    Is there a pension I can pay into?
    Also, will I receive widows pension only until I am old age pension age?
    Am mortgage free.
    Sorry for all questions, all very new to me


Comments

  • #2
    Geuze
    Registered Users, Registered Users 2 Posts: 14,039 ✭✭✭✭Geuze


    If you don't have any earned income, you can't make pension conts.

    If you are on welfare, you will typically build up rights to a State Pension.


  • #3
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,858 Mod ✭✭✭✭Henry Ford III


    Geuze wrote: »
    If you don't have any earned income, you can't make pension conts.

    Technically that's not correct.

    Whilst self employed or non pensionable income is a requirement for a PPP it's possible to contribute to a PRSA without that.

    It wouldn't make much sense to do so, but it's possible nonetheless.


  • #4
    daheff
    Registered Users, Registered Users 2 Posts: 5,933 ✭✭✭daheff


    the biggest benefit of a pension is that contributions reduce your tax bill. if you have no tax because you are not working, then you lose out.

    better to get back working and increase contributions to make up the difference


  • #5
    Jim2007
    Moderators, Business & Finance Moderators Posts: 10,606 Mod ✭✭✭✭Jim2007


    Henry Ford III wrote: »
    It wouldn't make much sense to do so, but it's possible nonetheless.

    It always makes sense to save for your retirement.


  • #6
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,858 Mod ✭✭✭✭Henry Ford III


    Jim2007 wrote: »
    It always makes sense to save for your retirement.

    Using a PRSA without any tax relief doesn't add up though.


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  • #7
    jimmy456
    Registered Users, Registered Users 2 Posts: 90 ✭✭jimmy456


    Henry Ford III wrote: »
    Using a PRSA without any tax relief doesn't add up though.

    the tax free investment growth is worth more than the tax relief on the way in.

    Also the money is out of reach so can't be spent.


  • #8
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,858 Mod ✭✭✭✭Henry Ford III


    jimmy456 wrote: »
    the tax free investment growth is worth more than the tax relief on the way in.

    Also the money is out of reach so can't be spent.

    Did you run the figures on this? Assume a premium of say €100p/m and 20% tax relief.

    Putting your savings into a pension means that 75% of it will be taxable on the way out if you encash it. Otherwise it goes into an annuity or ARF.


  • #9
    jimmy456
    Registered Users, Registered Users 2 Posts: 90 ✭✭jimmy456


    Henry Ford III wrote: »
    Did you run the figures on this? Assume a premium of say €100p/m and 20% tax relief.

    Putting your savings into a pension means that 75% of it will be taxable on the way out if you encash it. Otherwise it goes into an annuity or ARF.

    and putting your savings into investments now means that they are taxable now. With the pension you get to compound the the annual income and gains till retirement tax free. You have to be better off?


  • #10
    sunnyday1234
    Registered Users, Registered Users 2 Posts: 540 ✭✭✭sunnyday1234


    jimmy456 wrote: »
    and putting your savings into investments now means that they are taxable now. With the pension you get to compound the the annual income and gains till retirement tax free. You have to be better off?

    and using net money to put into investments is taxed money and then taxed again on any gains.


  • #11
    The J Stands for Jay
    Registered Users, Registered Users 2 Posts: 5,876 ✭✭✭The J Stands for Jay


    jimmy456 wrote: »
    and putting your savings into investments now means that they are taxable now. With the pension you get to compound the the annual income and gains till retirement tax free. You have to be better off?

    Only the income would be taxable now. The capital gains aren't taxes until they're realised (usually by selling the assets). The tax free growth in a pension will only save tax on dividends, but most of it'll be taxed when you take the money out of the pension anyway.


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  • #12
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,858 Mod ✭✭✭✭Henry Ford III


    Ok let's do some further thinking on this:-

    1/. Invest in a savings policy. No tax relief. Tax on the way out (on profit only). Access to all your money, whenever you want it.

    2/. PRSA. OP isn't working so there's no tax relief on the premium. Tax free growth on the funds. Access to 25% tax free at nrd ARF/annuity (taxable) the balance.

    Tax relief on premiums can save 0%/20%/40%, but the value of tax free growth is harder to gauge. Assuming an investment return of say 5% and a tax rate of 30% gross roll up is worth 1.5% p.a.

    Assuming a premium (ignoring inflation and charges) of €1000 the income tax relief (20%) foregone is €200 p.a. whereas the gross roll up advantage is €15 in year 1. Compounding premiums @ 5% rate of return will show a final value of €37342.

    The total return divided that by 5 and multiplied by 1.5 is €5202. Compare that to the total tax relief foregone of €4000 and the difference is €1202 in favour of the pension arrangement. Taking the benefits out however is the problem as 75% of them will be ultimately taxable.

    The savings plan incidentally would have achieved €31259.


  • #13
    jimmy456
    Registered Users, Registered Users 2 Posts: 90 ✭✭jimmy456


    Apologies I don't really understand your example. Are you saying that after the same period of time and for the same amount of contributions the pension pot is 37,342 v 31259 in the non pension product?

    My understanding is that the whole principle of investing for the long term is to build as big a pot as possible. Then in retirement you use your investments to replace your income. Now in the example above, at retirement we would invest these funds in income generating assets. The 37,342 pot is going to create a bigger income for you?


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