Simple guide to your pension options.

by Ian Gallagher | Nov 13, 2019

Pensions can be confusing and overwhelming at the best of times.

At Greenway we focus on giving clear information to explain what is happening with Pensions in Ireland in 2019. From Census 2016, people 65 years and older saw the largest increase in population since 2011, rising by 102,174 to 637,567, a rise of 19.1%.

The average age of Ireland’s population will continue to increase, as with most of Europe, and you need to think now about providing for your future retirement.

what exactly is a pension?

A pension is a fund that you contribute to during your working life. This fund will then be invested to provide you with an income in retirement. There are many types of funds, and many types of pension products.

Pensions break into 2 main areas. The state pension and private pensions. We’ve given some general information about both below.

How much do I need to save for retirement?

This depends on the type of lifestyle you want in retirement. Use the Pension Authority Pension calculator to see what you need. This is an independent resource, to help you figure out what you need to put away each month to secure your retirement income.

Try focusing on what money you can afford to put away each month. There are methods to allow you to increase or decrease the amount you put into your pensions.

The state pension

The State Pension might not be enough to cover your costs in retirement. Currently, the State Pension for someone who has made all their PRSI contributions is €248.30 per week or €12,911.60 per year. Compare this to the wages for a full-time worker on minimum wage: €19,874.40.

How to check your PRSI contributions?

If your not sure if you qualify for the state pension you can check services.mywelfare.ie

Private Pensions Information

Benefits of pensions

You can get tax relief on your contributions (up to limits based on age and earnings).

Your fund is tax-free until you begin withdrawing your pension.

Growth is on the pre-tax amount of the fund allowing for greater growth.

Compound interest allows for additional growth on each year’s gains.

You have a certain amount of choice on how you would like to take your benefits at retirement. Depending on your scheme, this can include tax-free lumps on retirement (rules for lumps sums vary from scheme to scheme), purchasing annuities, or ARFs.

Many personal pensions allow a choice of funds. You can work with a broker to decide what level of risk and investment type you’re comfortable with and can change this as your circumstances change.

Several types of pension products will allow you to take breaks in your contributions, or increase your contributions, depending on changes in your circumstances.

Tax Relief Earning limit

Your available tax relief increases as you age, to encourage you to contribute more at times in your life when your earnings are likely to be higher.
When calculating your tax relief, the maximum allowable earnings to calculate it is €115,000.
Your relief is calculated at your marginal rate of tax. Depending on your salary, this can make a difference to your Net pay.

Pension Tax Relief levels

Age	% Limit
Under 30	15%
30 – 39	20%
40 – 49	25%
50 – 54	30%
55 – 59	35%
60 or over	40%

Pensions risks

Your pension fund may fall in value as well as rise.
The pension fund returns may not keep pace with inflation.
The pension fund growth may not keep pace with a rise in the cost of providing pension benefits.
Pensions are investment products and different levels of risk exist.
Make sure you fully understand risks you are taking.
A good pension advisor will be happy to explain all options available to you.

Pensions Saving Example

Shane is 42 who earns €40,000 per year can contribute up to €10,000 per a year into a pension and apply income tax reliefs. This saves the income tax on the €10,000. Lets do more tax calculations on this to show the actual cost.

Person: Shane
Age: 42
Income: €40,000
Marital status: single

Income Tax without pension

Gross Income	€40,000
Tax payable @ 20%	€35,300
Amount payable		€7,060
Tax payable @ 40%	€4,700
Amount Payable		€1,880
Total Income Tax:		€8,940

Income tax with pension

Total Income	€40,000
Annual Pension Contributions	€5,000
Gross Income	€35,000
Tax payable @ 20%	€35,000
Amount payable		€7,000
Tax payable @ 40%	€0
Amount Payable		€0
Total Income Tax:		€7,000

Not only has Shane put €5,000 towards his retirement savings. He saved €1,940 on income tax. If Shane continued this until he is 68 years old he will build a pension fund of €130,000 and save €50,440 in income tax.

To see what you need to save for your pension each month visit The Pension Authority Pension calculator. This will give you an independent figure on what you need to save.

Your pension solution will be unique to you. Greenway can help you with personalised advice that puts you first.

1. Do you pay tax on a gift in Ireland?

You may have to pay Capital Acquisitions Tax (CAT) if the total value of gifts you receive from a particular group exceeds your lifetime tax-free threshold.

The person receiving the gift (the beneficiary), not the person giving it, is responsible for paying CAT if it applies.

However, many gifts fall within tax-free limits such as the Small Gift Exemption or the relevant group threshold.

2. How much money can you gift to a child tax-free in Ireland?

A child can receive up to the Group A threshold (€400,000) tax-free over their lifetime from a parent.

In addition, any person can gift €3,000 per year to another person under the Small Gift Exemption. This does not reduce the lifetime threshold.

For example, two parents could gift a child €6,000 per year (€3,000 each) completely tax-free.

3. What is the Small Gift Exemption?

The Small Gift Exemption allows a person to receive €3,000 per year from any individual without paying CAT.

Key points:

It applies per disponer (gift giver), per calendar year.
It does not reduce your lifetime threshold.
There is no limit to the number of people you can receive €3,000 from in a year.

4. What are the CAT group thresholds?

There are three tax-free thresholds depending on your relationship to the person giving the gift:

Group A – €400,000 | Applies mainly to children receiving gifts from parents.
Group B – €40,000 | Applies to siblings, nieces, nephews, grandchildren and certain other relatives.
Group C – €20,000 | Applies to all other relationships.

If the total value of gifts received from a group exceeds the relevant threshold, CAT is charged at 33% on the excess.

5. What is the current gift tax rate in Ireland?

The current Capital Acquisitions Tax (CAT) rate is 33%.

This rate applies only to the amount above your relevant tax-free threshold.

6. If I receive multiple gifts, how is tax calculated?

All gifts received from the same group since 5 December 1991 are aggregated together.

For example, if you received €100,000 from a parent previously and then receive €350,000 more, your total is €450,000.

Since the Group A threshold is €400,000, CAT would apply to €50,000.

7. Do I have to file a tax return for a gift?

You must file a CAT return (Form IT38) if:

The value of gifts received exceeds 80% of your relevant threshold, or
You owe CAT.

Filing deadlines depend on the valuation date of the gift.

8. What is the valuation date for a gift?

The valuation date is usually the date the beneficiary becomes entitled to the gift and can benefit from it.

For most straightforward cash gifts, this is the date the money is transferred.

9. Are gifts between spouses taxed?

No. Gifts between legally married spouses or civil partners are fully exempt from CAT.

10. Can I gift money to help my child buy a house?

Yes. Many parents use a combination of:

The Small Gift Exemption (€3,000 per year), and
Part of the Group A lifetime threshold (€400,000)

Careful planning is important to avoid unexpected tax issues, particularly if previous gifts have already been made.

11. Is inheritance tax the same as gift tax?

Both fall under Capital Acquisitions Tax (CAT) in Ireland.

The same group thresholds and 33% rate apply, but the timing and valuation rules differ between gifts and inheritances.

12. How can I reduce or plan for gift tax?

Planning options may include:

Using the Small Gift Exemption annually.
Structuring larger gifts over time.
Considering Section 72 or Section 73 life assurance policies.
Taking professional financial planning advice.

Proper estate planning can significantly reduce future tax exposure.

Services

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Debbie Cheevers

Qualified Financial Advisor (QFA), Retirement Planning Advisor (RPA), Technician Member of the Irish Taxation Institute

Debbie, a Dublin native, earned her degree in Visual Communication from NCAD before transitioning into the financial sector. She brings a strong customer service background to Greenway.

She became an Accredited Product Adviser (APA) in 2017 and achieved full qualification as a Financial Advisor (QFA) in 2018. Debbie has also added a tax qualification as a Technician Member of the Irish Taxation Institute and is a certified Retirement Planning Advisor (RPA).

With a deep belief in the power of product knowledge, she is committed to guiding clients toward informed financial decisions.

Contact Debbie Now