Is 57 too late to start saving for pension?
Your questions answered
Q I am 57 and I went back to work in December 2016. I have a salary of €24,000 per year and I have no pension in place. Is it too late for me to start paying into a pension? I would only be able to afford to save €100 per month as I have a daughter doing the Leaving Cert very soon. Patricia, Dublin 7
It is never too late to start saving for retirement - whether this is done through a pension or otherwise. You are 57, so have 11 years until your State pension starts. You could even keep working beyond that so you still have time to build up a fund to help your retirement.
The key questions determining whether or not a pension is the right way to save are as follows. First, do you pay any income tax? If the answer is yes, pension contributions will qualify for tax relief. Second, is your employer willing to contribute anything in addition to your own pension contributions? If the answer to either of those questions is yes, a pension arrangement may make most sense. If the answer to both questions is no, it may make more sense to save outside a pension - either into a regular savings bank account or a regular savings investment policy.
You should note that, even if your employer will not contribute to a pension with you, it must provide access to a Personal Retirement Savings Account (PRSA - a type of personal pension) so at least you will have an option available if you don't want to source a pension yourself.
The key point is that you should save for your retirement - whether through a pension or outside one. You should get some independent financial advice on the most appropriate arrangement for you.
Foreign service and pension
Q Some 25 years ago, I taught for two years in a French university and duly paid all my pension and social insurance levies. Now as a permanent secondary teacher employed by the Department of Education, I've been trying to find out if I can make these years' foreign service count towards my entitlement to an Irish State pension. This is particularly important for me, as I have only a few years of social insurance contributions accumulated for my work here in Ireland. Any enquiries I've sent online to French authorities remain unanswered and I wonder if I would have better success on the Irish side? If so, where should I address my query and do you have any other advice on how I might resolve this?
Mary, Co Kerry
You are correct that social insurance contributions made while employed in another EU state will count towards determining your entitlement to a State pension in Ireland. The Citizen's Information website gives a useful case study which may help you estimate your Irish State pension (contributory). You should also have an entitlement to a State pension from France in respect of the years employed there.
The Irish social welfare authorities will assist you in claiming your entitlement at the point that you retire. The claim form asks if you have ever been employed in another EU country and if so, to provide details of the country, your social security number, your employer and the dates you worked there. It is advisable that you submit your retirement claim at least six months in advance of your State pension age to give them time to track down your record. In the meantime, you can contact the French authorities at firstname.lastname@example.org to obtain the information directly if you are looking to estimate your position in advance.
Inheritance tax and pension
Q I recently had the option of leaving a preserved pension with Eircom (where I worked for 40 years) - or draw it out and reinvest it myself, which I did. It was a substantial pension. I accepted the transfer value offered by Eircom at the time and reinvested it in accordance with the rules, including accessing that pension from the age of 50. The main reason I accepted and transferred my pension was because in the event of my death, the remaining full fund values are paid to my estate - which of course would include my wife and adult children. My questions are: if I had included my wife in a joint investment of the transfer value, would she have to pay tax (inheritance or other tax) on inheriting her share of it if it transpired I pre-deceased her? Could I still include my wife in a joint investment of the transfer value at this stage? I also have a question in relation to the 'Fair Deal' nursing home option were I to need it in the future. I am under 60 and currently draw down about €250 per week from this pension - as I have a part-time job as well. I and my wife own our family home and I also own 30 acres of land. Were I to sign up to nursing home care through Fair Deal, would 80pc of my weekly €250 go towards the cost of my nursing home care under Fair Deal or have 'Fair Deal' access to the full pension pot - and could the HSE (through Fair Deal) make me increase my weekly take from the pension fund?
Pat, Co Meath
From your description above, you appear to have invested your pension in an Approved Retirement Fund (ARF). In that case, the ARF is a pension investment which is owned by yourself and you cannot nominate your wife as a joint holder of that investment at any point. However, the good news is that you do not need to hold a joint investment for your wife to avoid inheritance tax on the proceeds of your ARF.
After you die, your wife can inherit your ARF as an ARF in her name and then she is subject to the same rules as you are on your current ARF. If you have an Approved Minimum Retirement Fund (AMRF), it will be converted into an ARF in your wife's name.
However, there is an alternative method for distributing the proceeds of your ARF which involves treating the distribution as your income immediately prior to your death and therefore your wife would inherit the balance of the funds, net of the income tax, USC and PRSI deducted.
In order to ensure that your wife inherits your ARF without the imposition of any taxes, you would need to update your will to ensure that it is clear that your intention is that she inherits your ARF as an ARF in her own name. With regard to this, it is best to speak to your solicitor to update your will to reflect this intention.
In relation to Fair Deal, my understanding is that ARF distributions will count as income. Broadly, 40pc of your total income, including 40pc of your ARF distributions, will be payable towards Fair Deal costs if your wife is still alive. You should also note that 80pc of your total income, including 80pc of your ARF distributions, will be payable towards Fair Deal costs if by that time you are widowed. I am not aware of any right on the part of the State to force you to increase your ARF income in the event of you using Fair Deal.
The 'financial needs assessment' for Fair Deal is complex and very dependent on individual circumstances, so the answer given here necessarily involves some simplification and is not intended to be advice. You should therefore seek individual advice specifically based on your needs and circumstances.
Trevor Booth is head of personal financial planning at Mercer (mercer.ie)
While we will endeavour to place your questions with the most appropriate expert for your query, this column is not intended to replace professional advice
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