SERVICES - Summit Life

Types of Pensions

Personal Pension Plan | The Insured Executive Retirement Plan | Small Self Administered Scheme (SSAS) | Approved Retirement Fund (ARF) Read more ▸

PERSONAL PENSION PLANClick to expand

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A personal pension plan is a private pension structure available to the self-employed individual or to those in non-pensionable employment. The traditional personal pension plan is managed for the holder by a life assurance company or investment firm in order to provide benefits for the holder in retirement. The value of the pension fund at retirement will depend on the level of contributions made to the plan, the investment growth of the pension fund and the level of pension charges paid throughout the term of the plan. A portion of the fund may be taken as a tax free lump sum at retirement.

Tax Relief/Net Relevant Earnings:

Holders of a personal pension plan are entitled to receive full income tax relief at their marginal tax rate on their pension contributions based on current legislation. However, there are limits on the amount of tax relief that can be claimed. As highlighted below, these limits are influenced by the person’s age and is a percentage of their net relevant earnings, up to an “earnings ceiling” of €115,000. Holders of these plans are entitled to pay their pension contributions monthly or annually by direct debit or can pay a “once-off” contribution e.g. at the end of the tax year depending on their taxable earnings.

Age	% of relevant earnings eligible for tax relief
Under 30 years	15%
30 – 39 years	20%
40 – 49 years	25%
50 – 54 years	30%
55 – 59 years	35%
60 years and over	40%

THE INSURED EXECUTIVE RETIREMENT PLANClick to expand

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The Insured Executive Retirement Plan is a pension structure held with a life assurance company and is available to company owners and employees. The main benefits of this type of retirement plan is as follows:

It facilitates funding for retirement
It can reduce both corporate and personal tax rates
It enables the holder to extract funds from a company without any income tax liability
It allows for significantly greater levels of pension contributions than personal pension structures
A portion of the fund may be taken as a tax-free lump sum at retirement

SMALL SELF ADMINISTERED SCHEME (SSAS)Click to expand

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A Small Self Administered Scheme (SSAS) is a flexible arrangement which allows the holder a significant level of control over their retirement fund. There are a number of benefits to holding a SSAS:

They facilitate funding for retirement
They can significantly reduce both corporate and personal tax rates
They allow the holder greater flexibility with regard to making investments in a tax-free environment. Almost any investment can be made within these tax efficient structures subject to Revenue guidelines
They enable the holder to extract funds from a company without any income tax liability
They allow for significantly greater levels of pension contributions than personal pension structures as they can facilitate both personal and company contributions

Tax Benefits:

A SSAS has a number of tax benefits. Contributions made to the SSAS enjoy personal and/or corporation tax relief. Returns from the investments held within the trust are exempt from income tax, capital gains tax and DIRT. Also, a portion of the fund may be taken as a tax free lump sum at retirement.

Contributions:

There is no set amount that a holder has to contribute to a SSAS annually and few rules with regard to the frequency of these contributions. There are, however, some limitations on the amount that the holder can contribute personally or their employer can contribute on their behalf. These limitations vary depending on the individual’s age, number of year’s service, salary and whether the holder has any existing pension benefits.

Suitability:

In many cases, the SSAS is the best way for proprietary directors to fund for their future as it is the most tax efficient way to transfer company profits into personal capital. A SSAS can be set up for key employees and is an extremely tax efficient way to reward valued staff. It should be noted that some SSAS products are not regulated by the Central Bank of Ireland.

Investing with a SSAS:

Once a SSAS has been set up and has received Revenue Approval, the holder can then begin investing. There is a wide variety of investment options available to a SSAS and borrowing can also be facilitated within the fund. There are some restrictions on the investments that the fund can make, specifically the following:

Self-investing is not allowed. Investments have to be at arm’s length, so, for example, the holder cannot use the pension fund to purchase a property for their own use. However, the fund can purchase an investment property which can be rented (free from tax) to an unrelated party
Investing in pride in possession articles is prohibited such as vintage cars or fine wines

APPROVED RETIREMENT FUND (ARF)Click to expand

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An ARF is a post-retirement investment fund. It is an alternative to buying an annuity, i.e. an annual income with your pension fund at retirement. All members of defined contribution pension arrangements can now avail of the ARF option at retirement.

Tax treatment of an ARF:

An ARF is a tax-free investment structure and investments held within the ARF are allowed to grow free of tax. Only when funds are drawn from an ARF will a tax liability arise for the ARF investor. Funds drawn from an ARF will be liable to income tax in the same way a salary is liable to income tax and the ARF provider is under an obligation to deduct income tax under the PAYE rules; effectively the ARF investor becomes an employee of the ARF provider in respect of the income taken from the ARF. It is compulsory to draw down a minimum of 4% per annum from the ARF. The obligatory drawdown in respect of ARF investments will only apply where an ARF investor is aged 60 years or over in the tax year.

Options at retirement:

At retirement the pension fund holder is entitled to a lump sum (up to a maximum of €200,000 of this lump sum is tax free). With the remaining balance of the pension fund the holder can invest in an ARF.

WHAT IS A PENSION AND IS IT IMPORTANT TO PUT MONEY AWAY INTO ONE?Click to expand

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Given that most people will spend up to a quarter of their lives in retirement (over 20 years) and that the maximum contributory state pension is currently €14,470 per annum, saving for retirement is an essential part of financial planning.

Many people can be put off by the word “pension”, particularly younger people who think it is far removed for them and not very relevant. Many find pensions complex and confusing. The simple truth is, a pension is very similar to a long-term savings policy.

The idea of a pension is to encourage people to save money which they can draw on in the future when they no longer have a job which pays them a wage.

One of the main advantages of saving using a pension is the massive tax relief that is given to encourage individuals and companies to invest in one:

Individuals currently get either 20% or 40% tax relief on premiums they pay into a pension plan. Therefore for every €100 you put into your pension, the real cost to you is *€60! There are no other schemes which offer this type of incentive to encourage participation
Companies currently receive 12.5% tax relief on premiums paid into a pension on behalf on an employee.

There are many different types of pension products that can be used to save in:

Personal Pensions
Executive (Directors) Pensions
Personal Retirement Savings Accounts (PRSAs)
Company Pensions
Self -Directed Pensions
Small Self-Administered Pensions (SSAPs)

The main thing that individuals need to know is that all of these different types of pensions do exactly the same thing which is to try build up a pot of money for them to use while in retirement.

We at Summit Financial Planning have the expertise and experience in the area of retirement planning to help our clients put in place the most suitable pension product to match their individual needs. Once the client has started the pension we can take care of the rest!

*Assumed individual is a top rate tax payer of 40%

What is family protection

There are many different ways of putting in place family protection depending on exactly what it is that you are trying to protect. If you are looking at protecting an individual in the event they were to pass away, then a life cover benefit would be the most appropriate. Read more ▸

There are many different ways of putting in place family protection, depending on exactly what it is that you are trying to protect. If you are looking at protecting an individual in the event they were to pass away, then a life cover benefit would be the most appropriate. If you wish to protect an individual’s salary, then an income protection benefit would fit best.

Below is a list of policies that are available that can be put in place to provide family protection and a brief description of what it is each benefit is trying to protect:

- Mortgage Protection: This cover is required by banks to be put in place before a mortgage can be drawn down. It is designed to clear the balance of the mortgage in the event the individual covered on the policy passes away
- Life Term Assurance: This type of cover will pay out a lump sum benefit to the deceased person’s estate once the death happens within the term of the policy. The money can be used to help maintain a reasonable standard of living for their family
- Serious Illness Protection: This cover provides the life assured with a lump sum payment in the event of being diagnosed with certain serious illnesses (terms & conditions apply) during the term of the policy. This benefit could be used to pay down mortgage debt, medical expenses, time off work etc
- Income Protection: This cover protects a portion (maximum of 75%) of your salary in the event that you are unable to work due to accident or illness. Unlike other protection policies Income Protection pays you a monthly benefit rather than a once off lump sum and it is taxable. Most people don’t think of their income as an asset, despite the fact that it pays for everything – the mortgage, bills, children’s education, insurance and all other lifestyle expenses. One major advantage this type of product has is that the premiums qualify for tax relief at the individual’s marginal rate (20% or 40% currently) if it is a personal policy or at the corporate tax rate (12.5%) if paid by a company
- Pension Term Assurance: This is a life cover benefit which pays out a cash lump sum on death. This is effected through a personal or executive pension plan and the premiums qualify for tax relief at an individual’s marginal tax rate (20% or 40% currently) or at the corporate tax rate (12.5% currently) on the premiums

The financial effect an untimely death can have on a family is huge, especially if it happens to the main earner of the family. The most financially burdensome years for a lot of families is generally when they are raising a family. Therefore, it is vitally important to put in place adequate life & serious illness cover to protect against this unfortunate but very real danger to a family.

We at Summit Financial Planning are able to work with clients to help them to identify and calculate what their benefit amount should be. Affordability is obviously of great importance but we would always recommend to clients that part solution to a potential problem is better than not having any solution in place at all.

Business Protection

For business owners and senior employees, insuring that the business is appropriately protected is extremely important, as failure to adequately protect the business against unforeseen events can have a devastating effect on the business and its shareholders. Read more ▸

SHAREHOLDER/PARTNERSHIP PROTECTIONClick to expand

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Both shareholder and partnership protection have the same essential function – to allow the remaining directors or partners of a business to buy out the deceased partner’s share of the business from the next of kin with the proceeds of the insurance policy that was in force on the partner’s/director’s behalf.

For example, if the value of a business is €4 million and there were 4 partners, each would be insured for €1 million. In the event of death the insurance policy becomes available to the company to pay the value of the business to the deceased’s estate. Therefore the business does not need to sell assets or raise a loan to fund the €1 million cost. This is hugely important as it means money does not have to be withdrawn from the company or a loan taken out to buy the deceased partner’s/director’s share. It also provides for the partner’s/director’s next of kin and avoids any potentially dangerous legal proceedings.

KEY PERSON COVERClick to expand

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Key person insurance protects the business, and hence its shareholders, against any potential losses in the event of a key person to that business dying or getting seriously ill. The level of cover is typically valued based on the expertise, knowledge, experience and contacts that key person may have or alternatively on a multiple of the profits that person creates for the business. The policy is generally effected in the name of the business whereby the beneficiary is the business. It is not for the benefit of the individual’s estate.

Investment Strategy

At Summit Financial Planning we understand that each client’s financial position is different and unique to them. When investing in pensions or savings, some clients will have a higher threshold than others for taking on risk to try achieve potentially higher returns. Read more ▸

When it comes to investing, there are many different factors which need to be taken into account, such as:

Investor’s attitude to risk
Length of the investment term (short, medium or long)
The objective of the investment (college fund, emergency fund, retirement etc)
The client’s complete financial position taking into account all assets and liabilities and existing exposure they currently have to different asset classes (property, cash, equities etc)
The age of the client
Types of returns the client hopes to achieve
Security/Guarantees

When working with clients we develop an investment strategy suitable to their individual needs by taking the above factors into consideration. Some clients will be prepared to take risks while some will be uncomfortable taking any risk.The criteria we use to assess each and every client is consistent. Every client is brought through exactly the same investment process.

Sustainability Investing:
Taking due account of the size, nature and scale of our activities when providing Investment advice and Insurance Based Investment advice, we will not consider the adverse impacts of investment decisions on sustainability factors. We will review this opinion annually.

Fees

Summit Life & Pensions Ltd T/A Summit Financial Planning is remunerated by commission and other payments from product producers on the completion of business. You may choose to pay in full for our services by means of a fee. Read more ▸

Summit Financial Planning is remunerated by commission and other payments from product producers on the completion of business. You may choose to pay in full for our services by means of a fee. Where we receive recurring commission, this forms part of the remuneration for initial advice provided. If you elect to deal with Summit Financial Planning on a fee basis the advisor fee is €250 per hour.