A company or occupational pension are set up by employers to provide retirement and death benefits for their employees. Each scheme has its own set of rules.
There is no legal obligation on a company to set up a plan and if it doesn’t you should investigate the alternative option of setting up your own PRSA (Link back to PRSA section)
The main advantage of joining a pension scheme is the fact that employers must make a “meaningful” contribution to your pension.
Trustees are appointed who administer the fund on your behalf and your contributions are deducted automatically from your salary.
A company or occupational pension are set up by employers to provide retirement and death benefits for their employees. Each scheme has its own set of rules.
There is no legal obligation on a company to set up a plan and if it doesn’t you should investigate the alternative option of setting up your own PRSA (Link back to PRSA section)
The main advantage of joining a pension scheme is the fact that employers must make a “meaningful” contribution to your pension.
Trustees are appointed who administer the fund on your behalf and your contributions are deducted automatically from your salary.
The income you get depends on whether your employer’s plan is a ‘defined benefit plan’ or a ‘defined contribution’ plan.
A defined benefit plan
If you are lucky enough to be in one of these schemes you will get a pension pay out that is related to your final salary. The exact amount you will get depends on your years of service with the employer and your salary.
A defined contribution plan does not promise you a percentage of your final salary. Instead your pension depends on the performance of the pension fund’s investments and the value of contributions made by you and your employer. Fees and charges will be deducted from this amount. On retirement, the member's account is used to provide retirement benefits, sometimes through the purchase of an annuity which then provides a regular income.
The majority of employer schemes are now defined contribution plans.
However hybrids of these schemes are increasingly offered by employers.
How much should an employer pay?
Generally, employers contribute about 5% of pay to Defined Contribution schemes; Contributions to Defined Benefit schemes can be quite massive.
The Irish Association of Pension Funds which represents the financial institutions and some of the pension providers may give more info.
Its members represent 260,000 employees with occupational pensions
Tax relief
Your contribution to a company pension plan will normally be paid through payroll. As a result you will receive immediate and automatic tax relief. You do not have to claim this relief. You are not taxed on any employer contributions.
The maximum pension contributions, in any one year, for which you are entitled to tax relief, is related to your age and is expressed as a percentage of your gross income.
The maximum investment for tax purposes is down in 2011
The maximum gross income figure for relief purposes is €150,000 in 2010. This is being reduced by 23 per cent to €115,000 in the December 2010 budget.
The percentage relief limits are shown beneath.
|
Under 30 years |
15% of net relevant earnings |
|
30 to 39 years |
20% |
|
40 to 49 years |
25% |
|
50 to 54 years |
30% |
|
55 to 59 years |
35% |
|
60 and over |
40% |
The maximum amount also applies to people in certain occupations and professions, irrespective of age where there is a limited earnings span. These occupations include professional athletes.
There is a limit on the earnings that may be taken into account. The limit is €150,000 in 2010.
You no longer have to buy an annuity with the proceeds of your pension policy, however, you may do so if you wish. This option does not apply in general to occupational pensions, but it may apply to the Additional Voluntary Contributions (AVCs) paid by people in occupational pension schemes.
Public sector schemes
If you work in the public sector, your plan would normally provide a fixed level on pension and an additional tax-free lump sum.
The schemes vary depending on when you joined your work scheme and who operates it. There are various schemes, for example in the health system. The best thing is to contact your HR department or superannuation department to establish details about your scheme.
You can also contact the Irish Civil Service Pensions Information Centre.
Early retirement
Most company pension plans allow members to retire early with the employers or trustees consent from the age of 50. Many plans allow members to retire due to ill-health at any age.
The amount to collect in a pension will depend on whether you are on a defined benefit plan or a defined contribution plan.
Leaving your employer
Membership of a company plan ceases when you leave that employment. If you have more than two years' Qualifying Service, which normally means two years in the plan as a member for pension purposes, you will be able to:
- Leave your benefit in the plan untouched until you retire (known as a deferred or preserved benefit)
- Move or transfer your pension to your next job
If you have a defined benefit plan and you leave your pension in your former employer's plan, your benefit is not frozen - it will increase by 4% or by the increase in the consumer price index if less. Your pension will continue to be invested.
If you have less than two year's service however you may be obliged to take a refund less tax.
If you leave a company pension plan with a preserved benefit you are entitled to do one of the following:
- move it to a new employer's scheme
- put it into a PRSA
- put it into a 'buy-out' bond, which is a life assurance policy designed to receive transfer values from company pension plans.
- an overseas pension in certain cases
External links
