Why You Need to Ask Your Employer About Your Work Pension

two retirees sitting on a bench looking out to seaIn Australia, and now in the UK too, when you start a job you are automatically enrolled in a pension. Auto Enrolment it’s called.

Each new employee has the option to sign out of the pension but very few actually do it. Most think the idea of a pension is a good thing, I do too. Most people feel “well, I am not used to having the cash anyway, so I’ll quickly get used to not having it and if that means I then have money when I retire then ok!” They are good with that, makes perfect sense.

In Ireland, the landscape is entirely different. Employers are not obliged to enroll their employees in pensions. Pity.

As a result, very few wake up on a Monday thinking, “must sort out that retirement today!” So, the inevitable happens. Time is lost, life happens and affordability is always a concern because the challenge is now to spend money you have instead of spending money you never had. So, the pension coverage is Ireland is really poor in comparison. A real pity.

There are other factors of course. Jargon being one of them. As human beings who are consistently being sold to, it’s very difficult to buy into something without understanding it. But how can you understand something in an hour that took me 10 years to fully get my head around? So now you have to trust someone who knows what they are talking about. How do you find one of those? Word of mouth… aaaahhh! By the time you actually get this sorted years have typically slipped passed. A real bloody pity.

That is why pensions in Ireland at a basic level have poor levels of uptake and as a result too many people retire here without enough money.

Ultimately the people who are missing out are the people without the pensions in place often normal people like you and me.

One step the Government has taken to attempt to increase the pensions coverage in Ireland is to make employers provide access to a pension scheme to their staff. It’s an offence for an employer to not provide access to a pension plan to their staff and to facilitate the payment of this plan through their payslip.

So ask!

Lots of employers will have schemes in place, some will have PRSA’s in place and lots of others will have none.

If you would like to start to put a few bob away for retirement, your payslip is the easiest place to do it. So ask.

The key point is that you should not be one of the ones that falls into the trap of missing out on the tax breaks that are available to you. So just ask!

Take care,
Nick

Post Retirement Options and Debt

post-retirement couple assessing their finances

When you approaches retirement there are serious decisions to make. The choices you make at retirement can have lasting effects on your pension savings and how you can access them into retirement.

The drawdown options available to you at retirement can be complicated even more by having a mortgage debt issue which needs to be resolved. So allow me explain where this can get complicated.

TAX FREE CASH VERSUS ANNUITY

If you are entering an insolvency or bankruptcy process you must fill out a Standard Financial Statement that lists your assets and your incomes.

Assets are typically at serious risk of being used to pay creditors before any deal is done or be lost to the Official Assignee if entering a bankruptcy process. Income however is allowable to a certain level.

So when you are deciding between having accessible cash or an income for life the decision of which to choose is likely to be very different should you be considering a debt process. You will need to seek advice if you are approaching this juncture.

AMRF VS ARF

An AMRF is a retirement pot which is locked away until a client reaches 75, unless they show they have a guaranteed income for life in excess of €12,700 (currently). The first €63,500 of a client retirement assets after the lump sum is taken must be invested in an AMRF if they do not have this guaranteed level of income. An ARF on the other hand is fully accessible to the clients and can be drawn down at short notice.

The rules surrounding AMRF’s have changed recently. Previously you could access any amount over the €63500 so any growth or interest earned could be taken subject to tax. Now a client can only take 4% per annum regardless of the AMRF’s value.

So how does this affect clients entering a debt process? Often clients would like access to their AMRF to help them pay down their debts but believe they can’t have access to it. This is true but an AMRF can be turned into an ARF if a client can satisfy one rule and that is if they can show a guaranteed income for life in excess of €12,700. Often a client will be in receipt of the Old Age pension from the state of circa €12000. So all a client needs to do to convert their AMRF into an accessible ARF is to buy a small annuity which will deliver income of €700 per annum. Crucially this will unlock the remaining AMRF allowing them access to their funds which can then be used to address short term needs.

CONCLUSION

These are just 2 of the many pension related situations we come across everyday so please just get in touch with me directly if you have any pension related questions that are concerning you.

Now for the disclaimer. Pensions are very complicated and each individual case should be assessed on its own merits. The rules are there to be applied and used for each of us so please take advice on your situation before making any lasting decisions. Finally if you are considering entering a debt negotiation or process please consider your pensions assets and what form they are in. Your pension assets could be at risk of being lost against your wishes or indeed could be used to help you address your debt but pension planning in advance is vital.

If you would like to discuss your own situation, please feel free to get in touch with me directly on email on nick.lawlor@newbeginning.ie or contact the office on 01-5240000 and I would be happy to look at your situation to find out.