Pension benefits at retirement depend on the type of pension you have. Civil and Public Servants and private sector employees in defined benefit pensions usually have the following options, based on their years of service:
- A tax-free lump sum to a maximum of 150% of final salary
- A pension for life up to a maximum of 50% of final salary
- A survivor’s pension for life of 50% of the above pension
Holders of all other pension policies, including personal pensions, PRSAs, executive pensions and defined contribution pension schemes, have the following options:
- Take a tax-free lump sum of 25% of the value of your pension fund
- The remainder can be used to buy a pension for life at prevailing annuity rates* and if required, a survivors pension for life.
- Alternatively, you can invest in an Approved (Minimum) Retirement Fund [ARF/AMRF]
*The rate at which your pension fund is converted to an annual income. Presently, a male aged 65 would receive a pension for life of €50.00 per year for every €1,000.
Members of defined contribution pension schemes can choose to take pension benefits as available through defined benefit pension schemes, if this is more advantageous.
Holders of Additional Voluntary Contributions [AVC] also have ARF options on those funds.
At retirement, the biggest considerations are:
- How do I maximise my tax-free lump sum?
- Is a pension for life a better option than an Approved Retirement Fund?
- Should I take out a survivor’s pension?
With a pension for life you can never outlive you income which is paid until you die. If you have a survivor’s pension, it will be paid during the lifetime of your spouse. However, if you die shortly after retirement your funds are lost and nothing is passed to your surviving family.
With Approved Retirement Funds you can draw down income as required and on death any remaining cash will be paid to your Estate. Bear in mind that you could run out of funds and be left with nothing.
Whatever your questions, it is vital to take independent advice on what is best for you.