What type of Employee are you? Don’t worry, I am not asking you to declare how many cigarette breaks you take a day. The question relates more to your classification from a pension planning perspective. To keep it simple excluding company directors, there are 3 different categories:
- Private sector employee not included in an employer’s occupational pension scheme
- Private sector employee included in an employer’s occupational pension scheme
- Public sector employees included in their superannuation scheme
I have naturally highlighted number 1 above as this cohort of the population need to address this issue immediately. The bottom line on this is that Ireland’s % of the population aged 65+ is growing exponentially with a smaller number of workers available to subsidise the payment of these state pensions. Therefore, simple maths should inform you that the state pension entitlement is (a) likely to reduce and (b) you are more than likely going to receive it much later than your parents have.
What group am I in?
There exist a whole range of reasons for why an employee may not be included in an employer occupational pension scheme. These include:
- There is no occupational pension scheme in the company you work in **
- There are specific conditions for entry around the existing occupational scheme
- You chose not to join when given the opportunity
An employee should always join their employers occupational pension scheme ahead of making individual PRSA contributions. The rules of the Employer scheme may provide for a matching employer contribution. This would not be a BIK for income tax, PRSI or USC. As per below an employer is not obliged to contribute to an employees PRSA and if the employer does contribute it is a BIK for income tax. You are also restricted to just one tax-free lump-sum option via the PRSA route whereas there is much more flexibility on retirement options via the DC pension scheme. There are a wide range of other issues to consider here in relation death in service issues, so advice is needed.
**All employers must provide their employees with access to at least one Standard PRSA to which they can contribute by net pay deduction from salary. It is important to state however that the employer is not obliged to contribute to an employee’s PRSA.
I am a member of my Employer occupational pension scheme
Firstly, accept my congratulations. It may not feel like it now but making regular concrete pension contributions into a fund with broad equity market exposure is probably one of the best decisions that you can take to maximise your wealth. I have listed some important points below to bear in mind here:
- You may be able to top-up your employer scheme benefits with Additional Voluntary Contributions or AVC’s
- Most employees under-estimate their income requirement in retirement
- Most employees over-estimate the projected value of their pensions pots in addressing their expected needs
- According to research completed by the Central Statistics office [2015], employees that commence retirement saving at 30 still face huge pension adequacy issues. The research states that the combined projected Employer pension scheme and the projected state pension would replace just 36% of projected salary at age 65.
- Pension contribution rates of between 20% to 30% of salary are required to meet the most modest of replacement incomes in retirement.
Priya Wealth Management LTD is regulated by the Central Bank of Ireland CRO663501
Registered address: Solas, Scurlockstown, Meath, Republic of Ireland.
Terms of Business Data Privacy Cookies
Phone: 01 2248790
Email: info@priyawm.ie