There are a lot of risks to being self-employed. There are a lot of benefits to it, but one of the downsides is that you have to take care of your own pension. This can be daunting, but it doesn’t have to be!
In this blog post, we will discuss self-invested pensions for the self-employed in Ireland. We will talk about what they are, how they work, and why they are a great option for those who are self-employed. We will also provide some tips on how to get started with a self-invested pension plan.
What Are Self-invested Pensions and Why Should the Self-employed Consider Them?
Pensioners who have amassed funds over time are considering the places where their pension funds are put and the costs that are associated with the investments.
Many are taking the decision to have more control over their retirement plan in the coming years. Over the past ten years, we have seen an increasing trend of self-employed corporate directors/senior executives, as well as retired people, to self-invested pensions.
The Benefits of a Self-invested Pension for the Self-employed
Self-invested pensions permit them to achieve this in a cost-effective way, however, self-invested pensions aren’t an option for all. This type of pension falls under the rules of revenue on pension investing and is not limited to the investment requirements of any particular service supplier and/or Insurance Company.
They are a great option for those who are self-employed because they offer a lot of flexibility and control. With a self-invested pension, you can choose how your money is invested. You can also choose how much you want to contribute to your pension each year.
What type of pension can I take out?
Self-employed people are offered two primary choices regarding pensions:
- Personal Pension Plan (PPP)
- Personal Retirement Savings Program (PRSA)
Personal Pensions or Retirement Annuity Contracts (RACs) were traditionally the most preferred option for self-employed people who want to save for retirement due to the numerous advantages the product provides like the more diverse range of investment options, and possibly lower costs and also for self-employed persons have a more varied income (discuss in a future post).
This is a privately owned pension, which is held in your name. It is offered by a life insurance company to which you can contribute a % of your earnings and benefit from tax relief at your marginal rate. Depending on your age you can contribute between 15% and 40% of your earnings, to maximum earnings of €115,000.
This plan could generate a cash amount due to you upon retirement, in exchange for the contributions you make to the plan (these are either periodic or one-time contributions).
Personal Retirement Savings Accounts (PRSA) are similar to personal pension plans and were first introduced in 2002. They are basically a long-term savings contract with substantial tax reliefs available to everyone under age 75. It was designed principally to be a pre-retirement tool that allows individuals to plan their retirement savings flexibly.
A PRSA Pension is retirement savings account that you can access when you retire, at any point between 60 and 75. You are entitled to a 25% lump sum (with the first €200,000 tax-free and the next €300,000 taxed at the standard rate of tax, currently 20%).
When deciding which 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.