Why are people obsessed with getting a pension

The J Stands for Jay · 14-03-2019 4:27pm

Pussyhands wrote: »

So who is eligible for the 200k lump sum?

It's a limit on the amount you can get tax free.

You can have a lump sum of either 25% it 1.5times depending on your circumstances. The first 200k of that lump sum is tax free, the next 300k is taxed at 20% and anything over 500k is taxed under PAYE.

Drumpot · 14-03-2019 4:35pm

RoboKlopp wrote: »

Massive tax breaks for pension. It's a no brainer.

There's also a tax free lump sum of up to 200k at pension age that can be availed off.

Pussyhands wrote: »

So who is eligible for the 200k lump sum?

I presume you are referring to above post ?

The maximum tax free cash available from all Pension funds is potentially €200k. You can actually potentially drawdown a further €300,000 @ 20% tax but that will not be relevant for a lot of people.

You have to have built up at least €200k in a Pension somewhere (DB and/or DC) to be able to draw this down.

1) Pension fund of €200,000 @ 65. Retirement age of scheme is 65. 20+ years service, no other pensions. Final salary = €133,000. Tax free cash option of 1.5% x salary = €199,500
*The 1.5 x salary calculation may be proportionately lower if you are retiring early or do not have full 20 years service when claiming benefits
** Must be an occupational Pension Plan

2) Pension fund(s) of €800,000 @ 65. You can drawdown 25% of the value of this fund which equals €200,000.

Pussyhands · 14-03-2019 4:36pm

McGaggs wrote: »

It's a limit on the amount you can get tax free.

You can have a lump sum of either 25% it 1.5times depending on your circumstances. The first 200k of that lump sum is tax free, the next 300k is taxed at 20% and anything over 500k is taxed under PAYE.

So anyone can take the 200k lump sum tax free irrespective of salary?

If I have 200k in my pension pot I can take it all tax free? Or is it limited to 25%? (50k)

If it's limited to 25% it's not as good as it sounds as most if your money is still tied away and you may never see it.

Pussyhands · 14-03-2019 4:45pm

Drumpot wrote: »

I presume you are referring to above post ?

The maximum tax free cash available from all Pension funds is potentially €200k. You can actually potentially drawdown a further €300,000 @ 20% tax but that will not be relevant for a lot of people.

You have to have built up at least €200k in a Pension somewhere (DB and/or DC) to be able to draw this down.

1) Pension fund of €200,000 @ 65. Retirement age of scheme is 65. 20+ years service, no other pensions. Final salary = €133,000. Tax free cash option of 1.5% x salary = €199,500
*The 1.5 x salary calculation may be proportionately lower if you are retiring early or do not have full 20 years service when claiming benefits

2) Pension fund(s) of €800,000 @ 65. You can drawdown 25% of the value of this fund which equals €200,000.

What you have done looks far less attractive than saying you can get 200k tax free when you retire with your pension.

1. You need to have a high salary and work a long time with the one company to avail of the best method. What I think you're saying is, if your pension pot is 200k, if you earn 133k and have served the required number of years you can take all your pension pot tax free.

2. If I don't earn a high salary, to get the 200k I'd need to have 800k in my pot, most of the money would be tied away and likely never seen.

Let's take an example and see if this is possible. I pay 1200 into pension a year. Employer matches. That's 96k at the end of 40 years.

Say the pension stays exact same, excluding fees etc. If my final salary is 60k, can I take 90k of the 96k tax free?

Drumpot · 14-03-2019 4:49pm

Pussyhands wrote: »

So anyone can take the 200k lump sum tax free irrespective of salary?

If I have 200k in my pension pot I can take it all tax free? Or is it limited to 25%? (50k)

If it's limited to 25% it's not as good as it sounds as most if your money is still tied away and you may never see it.

I answered the first part of your question in my post above yours.

If you take 25% of your pension tax free you can usually choose to re-invest the balance of your €150,000 (ARF/AMRF) and draw the funds down as income. It will be subject to Income tax but the fund grows tax free. There is a decent chance that if you are only drawing €9k from a private pension that you wont have much tax to pay on it depending on your threshold.

Zamboni · 14-03-2019 4:54pm

....... wrote: »

Whats a good sum to have in your pension pot come retirement?

There are many ways of trying to figure this out...
It depends on how much money you are comfortable living on when you retire.
I like the 4% rule also known as F*%k you money :pac:
TLDR: Figure out how much you need to live on for a year and multiply by 25. Boom - get saving.
You'd obviously caveat that with endless assumptions about interest rates, and whether you have owned accommodation at time of retirement but it's a simple effective target number to start at.

Drumpot · 14-03-2019 4:56pm

Pussyhands wrote: »

What you have done looks far less attractive than saying you can get 200k tax free when you retire with your pension.

1. You need to have a high salary and work a long time with the one company to avail of the best method. What I think you're saying is, if your pension pot is 200k, if you earn 133k and have served the required number of years you can take all your pension pot tax free.

2. If I don't earn a high salary, to get the 200k I'd need to have 800k in my pot, most of the money would be tied away and likely never seen.

Let's take an example and see if this is possible. I pay 1200 into pension a year. Employer matches. That's 96k at the end of 40 years.

Say the pension stays exact same, excluding fees etc. If my final salary is 60k, can I take 90k of the 96k tax free?

Your final example looks right. If you get 90k tax free and there is 6k left over you may be entitled to take the 6k as a taxable lump sum if you have no other pension benefits.

Drumpot · 14-03-2019 5:05pm

Zamboni wrote: »

There are many ways of trying to figure this out...
It depends on how much money you are comfortable living on when you retire.
I like the 4% rule also known as F*%k you money :pac:
TLDR: Figure out how much you need to live on for a year and multiply by 25. Boom - get saving.
You'd obviously caveat that with endless assumptions about interest rates, and whether you have owned accommodation at time of retirement but it's a simple effective target number to start at.

Never heard of that Stoic Paddy guy, very funny way of educating people . . :pac:

....... · 14-03-2019 5:23pm

McGaggs wrote: »

€2.15 million would be the optimum sum, assuming you have sufficient earnings to have it within limits.

I genuinely dont know if you are being serious or not here. But I suspect not.

Surely only a tiny percentage of the population would have even 1 million in their pension pot come retirement? Considering so many dont even have a private pension at all.

I saw an article somewhere that suggested 1 mill was enough (combined with the state pension) for a couple to retire at 60 on, so 500k should be enough for 1 person?

....... · 14-03-2019 5:25pm

Zamboni wrote: »

You'd obviously caveat that with endless assumptions about interest rates, and whether you have owned accommodation at time of retirement but it's a simple effective target number to start at.

Oh wow - I can retire now!!

Zamboni · 14-03-2019 5:29pm

Drumpot wrote: »

Never heard of that Stoic Paddy guy, very funny way of educating people . . :pac:

Funny reading but too extreme for me.

NSAman · 14-03-2019 5:30pm

There are other ways and means besides a pension pot.

Personally, I do not have a pension. Having seen the raids on pensions and not having liquid cash to pay into one, I prefer a different method to tie me in my old age. Property and investments in business.

Even at this stage in life (and I have NO desire to ever retire fully) I can happily see where money will come from into my old age.

When I eventually do kick the bucket, not only will I have lived a full and enjoyable and safe life... there will be a big squabble over what is being left. I don't care about myself really, I love what I do, I have earned and saved enough to retire if I so wish at any stage, but I choose not to.

Crock Rock · 14-03-2019 6:13pm

Pensions are very tax efficient!
The money you are putting aside for pension isn't counted as income for tx reasons!

Say you earn €25,000 and you put €5,000 per year into you pension, you are only considered to be earning €20,000, because that €5,000 is put straight into your pension fund.

You will be taxedon your income when you take the pension out, but you will obvioulsy be earning much less, at the time so you'l be paying much less tax on that bit of money when you use it as income at retirement. Don't forget, pensions usually appreciate faster than inflation. No savings account that I know of woul offer than.

As I said, pensions are very tax efficient.

vkus6mt3y8zg2q · 14-03-2019 7:01pm

NSAman wrote: »

There are other ways and means besides a pension pot.

Personally, I do not have a pension. Having seen the raids on pensions and not having liquid cash to pay into one, I prefer a different method to tie me in my old age. Property and investments in business.

Even at this stage in life (and I have NO desire to ever retire fully) I can happily see where money will come from into my old age.

When I eventually do kick the bucket, not only will I have lived a full and enjoyable and safe life... there will be a big squabble over what is being left. I don't care about myself really, I love what I do, I have earned and saved enough to retire if I so wish at any stage, but I choose not to.

Ah another 'Boards millionare' who doesn't need to work and has endless money.

Viscount Aggro · 14-03-2019 7:41pm

....... wrote: »

I genuinely dont know if you are being serious or not here. But I suspect not.

Surely only a tiny percentage of the population would have even 1 million in their pension pot come retirement? Considering so many dont even have a private pension at all.

I saw an article somewhere that suggested 1 mill was enough (combined with the state pension) for a couple to retire at 60 on, so 500k should be enough for 1 person?

There are lots of people with pension pots this size.
One million is not a lot these days, in a pension that is.

The J Stands for Jay · 14-03-2019 8:18pm

Pussyhands wrote: »

So anyone can take the 200k lump sum tax free irrespective of salary?

If I have 200k in my pension pot I can take it all tax free? Or is it limited to 25%? (50k)

If it's limited to 25% it's not as good as it sounds as most if your money is still tied away and you may never see it.

No.

No.

You can choose either 25% or a lump sum based on your salary and how long you were in the job. It's possible to get it all out.

jimmy456 · 14-03-2019 8:30pm

People are obsessed with pensions as ultimately people want to stop working for a living at some stage in future and continue to have the same standard living. The pension can assist in making this a reality.

When it comes to saving for retirement pension funding is the best gig in town. The pension structure offers huge tax breaks in comparison to saving personally. Its madness really that people would prefer to save personally and not fund a pension!

NSAman · 14-03-2019 8:36pm

Miriam Savory Horn wrote: »

Ah another 'Boards millionare' who doesn't need to work and has endless money.

Jealous much?

Who said I was a millionaire? Comfortable yes, but there are other ways of retirement, rather than pensions.... perhaps you should look into them... but then again.. I'm not sure you have the ability.

donkey balls · 15-03-2019 12:53am

My first intro into the pension market was back in the 90s when I started work for an airline in my early 20s, At first I just paid in the minimum agreed amount with the company.
At the time the tax rate was 48 pence to the punt and PRSI was I think about 8% , It was only when we had someone from the pension company come in for a chat that I decided to increase the AVC to the 10% max.

Again this was a no brainer as the money would be put away without being lost in the tax pool i.e dead money going into the general taxation coffers, The fund did lose a lot during the last crash but has more or less recovered.
I'm working in a different industry now and have another pension with the company I work for, I am putting 25% of my salary away as I need to play catch up as I didn't have a pension for 10 years.
Again I would rather have the money going into a fund rather than the taxman taking it all, I know that people on low wages or working agency like I had to during the last recession would not have money to spare for a pension.
But people that do would be foolish not to invest in a pension, I reckon that in years to come the state pensionable age will not only increase but will more than likely be assessed on your other incomes like pensions etc.

Jim2007 · 15-03-2019 1:51am

Miriam Savory Horn wrote: »

Ah another 'Boards millionare' who doesn't need to work and has endless money.

Another guy who does a poor job of managing their money and assumes everything else does the same.... how wrong you are.

Jim2007 · 15-03-2019 2:07am

....... wrote: »

Surely only a tiny percentage of the population would have even 1 million in their pension pot come retirement? Considering so many dont even have a private pension at all.

In European countries where pension reform is further on than Ireland, it is not uncommon. If you start a pension at 20:
- You have 45 years of savings
- Capital growth in the fund
- Tax advantages
- Employers contributions

bilbot79 · 15-03-2019 7:42am

....... wrote: »

I genuinely dont know if you are being serious or not here. But I suspect not.

Surely only a tiny percentage of the population would have even 1 million in their pension pot come retirement? Considering so many dont even have a private pension at all.

I saw an article somewhere that suggested 1 mill was enough (combined with the state pension) for a couple to retire at 60 on, so 500k should be enough for 1 person?

I agree. Something like 2.5mil is luxury. I think 1.5 mil is optimum especially knowing the state pension eventually kicks in too.

This is the best calculator I find

https://www.newireland.ie/pension-calculator/

bilbot79 · 15-03-2019 7:46am

NSAman wrote: »

There are other ways and means besides a pension pot.

Personally, I do not have a pension. Having seen the raids on pensions and not having liquid cash to pay into one, I prefer a different method to tie me in my old age. Property and investments in business.

Even at this stage in life (and I have NO desire to ever retire fully) I can happily see where money will come from into my old age.

When I eventually do kick the bucket, not only will I have lived a full and enjoyable and safe life... there will be a big squabble over what is being left. I don't care about myself really, I love what I do, I have earned and saved enough to retire if I so wish at any stage, but I choose not to.

These raids on pensions. Does that mean the state pension? Which pensions are raided?

Or is it those dang Vikings again? I thought they stopped that business years ago

The J Stands for Jay · 15-03-2019 7:55am

bilbot79 wrote: »

I agree. Something like 2.5mil is luxury. I think 1.5 mil is optimum especially knowing the state pension eventually kicks in too.

This is the best calculator I find

https://www.newireland.ie/pension-calculator/

All the online calculators fall down in their insistence on assuming you buy an annuity.

donkey balls · 15-03-2019 9:42am

It was private sector pensions that Noonan stole from, It finished a year or two ago from memory

The J Stands for Jay · 15-03-2019 10:04am

donkey balls wrote: »

It was private sector pensions that Noonan stole from, It finished a year or two ago from memory

0.6% for a few years, one year at 0.75% and a final year at 0.15%.

Annoying (blatant robbery by the government), but still not undoing the advantage of the tax relief. It's not a justification for not having a pension.

jimmy456 · 15-03-2019 10:09am

bilbot79 wrote: »

I agree. Something like 2.5mil is luxury. I think 1.5 mil is optimum especially knowing the state pension eventually kicks in too.

This is the best calculator I find

https://www.newireland.ie/pension-calculator/

Its impossible to know what pension pot size is optimal without knowing what a persons future cashflow needs are.

For example some people maybe happy to live on 300 quid a week in retirement. For them the state pension suffices along with a small private pension.

Others may want or need more depending on their circumstances.

Also others might be happy to take on more risk than others. For them the pot can be potentially much smaller than a more risk adverse person.

There is no optimal figure. Its personal to your situation.

Those calculators are also full of assumptions so should be used with care and not form the basis of your retirement planning.

Dakota Dan · 15-03-2019 10:17am

SureYWouldntYa wrote: »

There’s the tax incentives too

I dont know the exact rates, but putting €1000 in your pension pot might only cost €600 or so, again not sure of the exact rates but there are incentives

Also the earlier you start the better. Assuming a nominal rate of return and contributions across all years, your pension at pension age will be worth more if you invest from 25-35 and stop than if you start at 35 and go to 65, such is the power of compounding

Tax incentives when paying in and taxed when withdrawing the pension.

jimmy456 · 15-03-2019 10:24am

Dakota Dan wrote: »

Tax incentives when paying in and taxed when withdrawing the pension.

Say you max out your pension. (The principle is the same either way)

You get the following:

440k into your hand on retirement with a tax leakage of 60k.
Tax free growth on all investments
You get tax relief at the highest rate on the way in and pay tax potentially lower effective rate on the way out
Even better contribution rates for business owners.

Its a great deal really. There is no other saving scheme that comes close to it.

jim-mcdee · 15-03-2019 10:53am

Jim2007 wrote: »

No it does not. You are failing to take human nature into account. Given access to pension savings, people will always find a very good logical reason to spend it. If you look at countries that allow access such as the US 401K, IRA etc, you find that the people's total net worth on reaching retirement is very low.

Here in Switzerland pension funds are very tightly controlled both in terms of contribution and management. So much so that if a fund manager fails to return a predefined minimum return as set by the government, they are required to pay into the fund to bring it up to the expected level.

As a result it is not unusual to find say an electrician retiring at 58 with 600K - 700K in their fund.... and the big shock provably for an Irish person is that the consider putting more the 7% of it into property as being a very foolish thing to do.

Wow. Is it possible to buy into a Swiss pension?

Why are people obsessed with getting a pension

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