Business Personal Finance

Wednesday 13 December 2017

Can I top up my State pension from Saudi?

Your questions answered

Riyadh, capital of Saudi Arabia
Riyadh, capital of Saudi Arabia

Jerry Moriarty CEO of the IAPF (www.iapf.ie)

Q: I've been nursing in Saudi since September 2003. I'm not sure when I'll return home to work. Prior to this, I nursed in the HSE. Can I elect to pay voluntary PRSI contributions and backdate it? My aim is to ensure I'll be entitled to the State pension in the future. I'll be 40 in July. Sorcha, Riyadh

To be eligible to make voluntary contributions, you must comply with the following conditions. You must have at least 520 PRSI (weekly) contributions paid under compulsory insurance in either employment or self-employment.

Since you are only 39, and have been out of the country for 14 years, it is doubtful that you will meet this criterion.

You must also apply to make your voluntary contribution within 60 months (five years) of the end of the last completed tax year (which seems to be 2002 or 2003) during which you last paid compulsory insurance or you were last awarded a credited contribution.

Unfortunately, you don't appear to meet this criterion either, so you will be unable to elect to pay voluntary PRSI contributions or to backdate them to ensure that you will be entitled to the State pension.

On the positive side, you are still relatively young and could still stay abroad for a further 10 years before returning here and qualifying for the State pension in the last 10 years of your working life - assuming that the rules don't change.

You can contact the Department of Social Protection for further details.

What are best funds at 57?

Q: I have a defined contribution pension scheme with a pension fund which is valued at €400,000. I am 57 and in full employment (not self-employed) in the private sector. How would you recommend managing my pension given my age - specifically, what type of funds should I be investing in, or moving to, over the next three to five years?

Colin, Stepaside, Co Dublin

 

You don't say when you plan to retire or if you plan to opt for an annuity or an approved retirement fund (ARF) at that point. So, I will assume that you're planning to retire at 65 and have yet to decide whether to go for the annuity or ARF.

An annuity is a contract (generally with a life insurance company) that will pay you a guaranteed, regular pension income for life.

An ARF is a retirement investment fund which allows you to keep your money invested as a lump sum after retirement and manage and withdraw from your pension however you see fit.

While many people put off deciding between these two, it is probably better to consider and plan for one over the other at this point as that will dictate your investment strategy between now and 65.

If you favour the ARF, you will probably start withdrawing relatively small amounts (say between 5pc and 6pc) from it each year after you retire. Therefore, you can afford to treat the ARF as an investment of 20 or more years because you may not withdraw some of the funds for 30 years.

However, if you favour the guaranteed annuity, you will effectively withdraw 100pc of your fund and give it to the insurance company at the age of 65.

Therefore, with the guaranteed annuity, you'll need to take a much more conservative investment approach over the next eight years - which may slow the growth of your fund.

So, while you have to make some assumptions at this point, there is, unfortunately, no crystal ball to show you which is the better option.

It is possible your fund is already switching your investments to match the type of benefit you will take - or that it will just to move you into less risky events before you retire. You should talk to your fund's trustees or administrators to check this and also consider getting independent financial advice on your options.

Taxing implications of ARF

Q I will be retiring in a few years. I really don't want to purchase an annuity as I don't see them as being good value for money. I like the idea of an Approved Retirement Fund (ARF) but don't understand the tax implications. What are the main tax issues I should be aware of?

Sheila, Rathdrum, Co Wicklow

 

With interest rates so low, some people would regard annuities as offering relatively poor value for money right now - a person retiring at 65 with a fund of €500,000, which seems like a lot of money, would typically receive an income of €20,000 for the rest of their lives.

They would need to live until 90 just to get their money back. That said, they may live to over 100 so they could do well. In effect, with annuities, you are paying for the guarantee of income.

Any amounts drawn down from an ARF are taxed as income and are also subject to the Universal Social Charge, just as would be the case with the annuity.

However, while the income from the annuity is automatic and unstoppable, you may decide not take money from your ARF for a period of time for several reasons - such as that you may not need it or that the fund may be preforming poorer than expected.

Assuming that you will be at least 61 when you retire, under tax law it is assumed that you will withdraw a minimum percentage (currently 4pc) of the market value of assets in the ARF on December 31 each year.

The assumed withdrawal rises to 5pc where the ARF owner reaches 71 years of age. Those with ARF assets and vested PRSAs worth over €2m will have an assumed withdrawal rate of 6pc.

These amounts are taxed as normal income regardless of whether you actually withdraw them or not.

How safe is money in PRSA?

Q I'm considering opening a PRSA but am not sure where I would stand if the PRSA provider ran into financial difficulties. What happens to the money in my PRSA if the PRSA provider behind it goes bust? Is my money safeguarded in any way?

Jane, Portlaoise, Co Laois

 

As with many of the questions on pensions, it depends. The Pensions Authority and Revenue are jointly responsible for approving PRSA products.

The Pensions Authority supervises the activities of PRSA providers in relation to their approved products and monitors compliance with PRSA legislation.

The Central Bank of Ireland is responsible for the prudential supervision of PRSA providers and the supervision of the sales process of approved PRSA products.

If your PRSA is with an investment firm which goes bust, you may be entitled to compensation under the investor compensation scheme which would cover 90pc of your fund up to a maximum of €20,000.

If it is with an life insurance company, it is extremely unlikely that the company would go bust because of the way life insurance companies are structured and regulated.

If it did happen, all assets are used to pay policyholders before any creditors are paid.

Sunday Indo Business

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