Personal Pension Explained

Pension Terminology

Risk Level – Each fund has a risk level attached to it which is a guide how risky the fund is. A higher number means a higher risk fund and a lower number means a lower risk fund. A higher risk fund will give you more potential for investment growth. The scale is generally 1 to 7.

Tax Relief – Is a tax deduction on your pension contributions. It is an incentive to encourage people to save into their pensions.

Contributions – These are the payments you pay into the pensions fund they can be made in lump sums or recurring monthly premiums.

What is a Personal Pension?

A Personal Pension is an account you can use to save for your retirement. You can make lump or recurring payments into a Personal Pension, and these are usually tax deductible. A Personal Pension can be invested into different types of funds with different risk levels (higher risk means a better chance of high returns but a higher chance of losing your money and lower risk means lower potential returns but less chance of the fund decreasing.)

Can anyone get a Personal Pension?

Personal Pensions are best suited to the self-employed or employees whose employer does not offer a pension scheme. Personal Pensions are similar to PRSAs but they do lack the function of allowing an employer to pay into your pension. In contrast, PRSAs will at the very least allow employees to pay into their pension and have these payments deducted from their salary and receive the tax relief at source. This is not possible with a Personal Pension and payments must be made from the employee’s bank account and tax relief claimed when making tax returns.

What is the tax relief on a Personal Pension?

The tax relief you receive is related to your earnings and only available if you are paying tax. So, if your earnings put you in the 20% tax band you will get 20% tax relief on all your payments into the fund. If your earnings put you in the 40% tax band, you will receive 40% tax relief on the amount of income that is subject to the higher rate of tax.

For example: John is in the 20% tax band and pays €400 into his PRSA every month. John will receive 20% tax relief on that payment which will only cost him €320.

How do I get a Personal Pension?

Personal Pensions are available from most Life companies, and a broker would be able to give advice on what options are available.

If you have a Personal Pension currently or would like to start saving for your retirement, you can always talk to one of our advisors for impartial advice.


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