With people living longer, workers need to start planning for their retirement years as early as possible. One of the biggest concerns for workers in their retirement age is whether they will have enough money to live on.
In this blog post, we will discuss the importance of pension retirement funds and how they can help ease the concerns of workers in their retirement age.
What is a Pension Retirement Fund?
Pension retirement funds are important for workers in their retirement age because they provide a source of income that can help cover living costs. Retirement can be expensive, with many people having to pay for healthcare and housing. A pension can help to ease the financial burden during this time.
There are several things to consider when choosing a pension retirement fund. Workers in their retirement age should consider how much money they will need to live on during their retirement years and the age at which they would like to retire. They should also consider the investment risk and whether they are comfortable with it.
What Are the Different Types of Pensions Available to Workers in Their Retirement Age in Ireland?
There are three main types of pensions available to workers in their retirement age in Ireland:
This is a retirement pension that is paid by the government to people who have reached the state pension age. The state pension age is currently 66 years old. To qualify for the state pension, workers in their retirement age must have paid social insurance contributions for a certain number of years.
Occupational pension, also known as employer or company pension plans, is provided by your company. These retirement pension schemes offer a regular income following retirement. Certain schemes also provide an amount in lump sums at the time you take your retirement.
There is no legal requirement for employers to offer workplace pension plans for their employees. The majority of large employers in Ireland have retirement pension plans for employees, however, smaller employers don’t.
Each pension scheme is governed by its own rules. Retirement Pension plans are usually governed with the help of the Pensions Authority. Members of schemes are entitled to certain privileges, such as access to information on their pension.
Occupational retirement pension schemes available for workers in their retirement age may be:
- Non-contributory or contributory
In the contributory scheme, both the employer and you contribute to the scheme. In non-contributory, your employer is the only one who contributes.
- Unfunded or funded
The majority of occupational schemes are funded by contributions to a specific fund, while the benefit is repaid from that fund. The most evident difference is the retirement pension scheme for public service employees in which there is no fund, and the benefits are paid from the current funds of the government.
- Defined benefit, defined contribution, or a combination of both
If you are enrolled in a fixed contribution plan, the retirement pension contributions you pay are fixed, while the retirement pension benefits you receive are contingent on the contributions you made.
If you are in a defined benefit plan then your final pension benefit is calculated based on your final salary and length of service. Basically your employer is under-writing your retirement pension.
Pension plans for workers in their retirement age can provide elements that are both defined benefits as well as contribution schemes. They are referred to by the term hybrid schemes. It means you can forecast a certain amount of income for a defined-benefit plan, however, the rest of it could differ as it is subject to the rules of defined contribution.
3. Personal Pensions
There are many reasons not to have an occupational pension plan or be able to do this (for instance, if you are self-employed or your company does not have a scheme). In such cases, you could save for retirement options for workers by selecting another type of retirement pension plan. These are referred to as personal or private pension plans. They are managed by life insurance or investment firm like Newcourt Pensioneer Trustees Limited.
The two most popular personal pension plans are the Personal Retirement Savings Account (PRSA) and Retirement Annuity Contract (RAC).
They are pension plans for workers in their retirement age typically funded by individual contributions, although employers may contribute towards these accounts. They can be accessed through financial service firms like banks, insurance companies, and financial advisors. These plans also offer a tax-free lump sum with certain limits and the option of a pension or other benefit at retirement.
If your employer provides the PRSA instead of the traditional retirement pension plan, you will subtract contributions from your wages and pay these to the PRSA provider. The employer can make contributions to PRSA but is not required to.
If you are in receipt of income from 2 different employments then you may be eligible to join your employers pension scheme and take out a Personal Pension or PRSA for your 2nd income.
How Do You Know Which Retirement Pension is Right for You and Your Needs?
There are options for the pension planning of workers in their retirement age. It can be difficult to know which is right for you with all the retirement options for workers available. It is important to take the time to understand all the different options to make an informed decision about what is best for your future.
Both occupational pension schemes and personal pension plans may give benefits in the event of death before retirement or upon death during retirement.
The three plans are tax-approved by Revenue. The advantages of having approval include:
- You will be eligible for tax relief for your contributions.
- You are not taxed on the employer’s contribution if you have any.
- Your investments grow tax-free and
- The lump-sum you can take in retirement is tax-free, up to a certain amount.
Revenue imposes limitations on the relief that is available for contributions as well as benefits. The limits are sufficient for the majority of people to receive the benefits of a decent retirement pension.
In considering the best retirement pension for workers in their retirement age, the most important choices you have to take are:
- What retirement pension plan is available to me?
- What kind of retirement pension plan is most appropriate?
- What should I save?
What Should You Do if You’re Nearing Retirement Age and Don’t Have a Retirement Pension Yet?
If you’re an employee but don’t have access to an occupational pension plan or if you want to improve your benefits, the earlier you begin saving for retirement, the more benefits you will get.
It is important to note that if your employer is not able to offer access to an employer-sponsored retirement pension scheme within the first six months after signing up for the service, you will need to access a Standard PRSA. It means that your employer has to provide an option for payroll deduction to at least one Standard PRSA Ireland provider.
The common question for workers in their retirement age is, “Are you prepared for retirement?” You are ultimately responsible for your personal retirement plan especially if you are one of those workers in their retirement age. It’s your responsibility to plant the seeds which will bear the fruit of a peaceful retirement in the years to come.
When deciding which retirement pension plan is right for you, it is important to seek professional financial advice from a Qualified Financial Advisor to ensure that you are making the best decision for your individual needs.