Thursday 29 September 2016

Will we still get the State pension if we retire to Florida after working all our lives here?

Peter McLoughlin

Published 20/09/2015 | 02:30

The State contributory pension can be claimed by and paid to those who qualify for them but who don't necessarily reside in Ireland any more
The State contributory pension can be claimed by and paid to those who qualify for them but who don't necessarily reside in Ireland any more

My husband and I are in our early sixties. We are planning to retire in Florida. We have both been working in Ireland consistently for the last 30 years and have paid PRSI for all of those years. If we retire to Florida, would we still be entitled to the Irish State pension? And if so, how exactly would that pension be paid to us? Gemma, Ashbourne, Co Meath

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The simple answer to this question is yes. The State contributory pension can be claimed by and paid to those who qualify for them but who don't necessarily reside in Ireland any more. This pension can be paid to you electronically and would be paid into your bank account.

To qualify for the State contributory pension, you must have paid social insurance contributions before a certain age, have a certain number of social insurance contributions paid - and have a certain average number of social insurance contributions over the years since you first started to pay. For more information, contact the Department of Social Protection on 071 915 7100 or visit www.welfare.ie/en/pages/state-pension-contributory.aspx

I haven't yet started a pension - and although I'm young, I don't like taking much risk with my money. From what I can see, people often lose money on the funds and stocks that their pensions are invested in - and they're also hit with a raft of pension charges. Would it make more sense for me to save money into a deposit account?

Derek, Raheny, Dublin 5

The common misconception is that there are high charges associated with pensions and that all pensions are risky and lose or have lost money. This is not the case.

There are essentially two elements to a pension. The first is the tax breaks that are associated with the pension structure itself, and the second is where you want that pension money invested. The latter is determined by your risk profile.

A number of factors will determine your overall risk profile such as the age you are when you commence pension funding, the length of time you have to go until retirement, other types of investments you have, and so on.

If you are risk averse, then it is possible to cater for that within a pension structure.

As regards tax, there are a number of tax breaks associated with pensions - the main one being that your contributions are tax deductible at your marginal rate of income tax providing of course that the source of income in question is earned income (that is, income from an employment or self-employment).

In other words, if you have earned income taxed at the higher rate of income tax, you can receive tax relief on the amount of income that is taxed at the higher rate of tax - subject to an overall income limit. The limits for personal contributions are based on the age of the person making the contribution. For example, a person up to the age of 29 can contribute 15pc of their gross income into a pension and get tax relief at their marginal rate of income tax. Furthermore, any growth obtained within pension funds is tax free - unlike the growth in non-pension investment funds.

At the point of retirement, you can take a portion of your fund as tax-free cash. This could either be 25pc of your fund up to a maximum €200,000 or 1.5 times your salary (if you were a member of an occupational scheme) - again up to a limit of €200,000, assuming you have a minimum salaried service of 20 years and you retire under the scheme's normal retirement rules.

Pension charges vary depending on the type of contract, the amount you (and your employer, if it chooses to do so) are contributing into the pension, the length of time you have to go to retirement and the funds you invest in. The main types of pension charges are the allocation rates associated with your investment, the management charge and a plan charge on the underlying funds. There are other ancillary charges associated with pension funds depending on the type of contract. One of these is the infamous pension levy, currently at 0.15pc of the value of the fund, which is paid to the government and due to finish at the end of 2015.

How your adviser will be remunerated for his advice will be a key part of any discussions you should have. The adviser may be fee-based and so charge a set fee for the advice that he is giving - or he may be remunerated by the provider with whom the business is being placed with. In some cases, there could be a combination of both.

I was self-employed for about 15 years and have a PRSA from that time. I am still contributing into that PRSA. I have recently taken up work in the public sector but as I don't have a permanent job, I'm not entitled to sign up to the public sector pension. I'd like to boost my pension pot though. What's the best way of doing so with my existing PRSA?

Niall, Ashtown, Dublin 15

One of the key benefits of a PRSA is that it is portable. This means that you can bring it with you if and when you move employment. Your employer is required by legislation to deduct from your salary whatever contribution you decide to make and your employer must then forward that contribution to your PRSA provider by the 21st of the month that the contribution was deducted. You will also receive tax relief at your marginal rate of income tax based on the contributions that you make.

The great thing about your employer making the deductions is that the deductions are done on a net-pay basis. What this means is that by notifying Revenue, your tax credits can be adjusted to reflect the tax relief you are receiving with the actual deduction being made by the employer from your salary being the net amount of your PRSA contribution. This removes the need for you to have to claim tax relief yourself on your contributions.

In the event that you are made permanent and that you are given access to the occupational scheme, you can still continue to contribute to your PRSA as well as having your employer make pension contributions on your behalf. There are limits, however, to what you can contribute yourself personally, depending on your age - and there is also a lifetime maximum fund size that you can accumulate between both your own PRSA and your occupational scheme.

Be wary if your employer offers to contribute to your PRSA on your behalf as these employer contributions will attract Universal Social Charge - unlike employer contributions to an occupational pension scheme.

When it comes to retirement, your options for tax-free cash are greater with an occupational pension scheme than they are with a PRSA. On the other hand, if your PRSA is not an AVC-PRSA (AVC being Additional Voluntary Contribution), it won't be treated as being under the rules of the occupational scheme - which may actually be in your favour.

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