Pensions are one of the last remaining generous tax relief options and those wishing to avail of the annual benefits must contribute into a personal pension before the January 31st tax deadline.
The relief allowable depends on an individual's age. Those under age 30 may claim a maximum relief of 15 per cent net relevant earnings; age 30-39, 20 per cent; age 40-49, 25 per cent and age 50 and over, 30 per cent.
Fortunately, more people are taking personal responsibility for their retirement planning rather than relying on the State. For example, Ms S tells Family Money she is a married, professional woman in her thirties interested in purchasing a personal pension as her company does not offer a scheme to employees. Most of her income is currently taxed in the higher rate tax band and if possible she would like to save for the future using pre-tax money. Ms S hopes to take a few years off to start and raise a family but she is concerned about tying up extra cash in a inflexible pension scheme with absolutely no access to it until she retires.
The point of a pension, and the reason for the tax benefits, is that the money cannot be touched until retirement. Some pensions are designed to allow a break in payments - to raise a child, for example - without penalty. However, if Ms S definitely needs access to the cash during this period she should consider an investment or savings plan instead of a pension. This will not provide her with the tax benefits but will satisfy the cash access requirement. Ms S should also think about placing half the money into a pension and the other half into a diversified investment portfolio with cash access. The longer she waits to start a pension plan, the more expensive it will be to attain the same level of income on retirement.
Our reader asks how to obtain a list of pension advisers. The Irish Brokers' Association (IBA) details insurance intermediaries by location on its website www.irishbrokers.com. The Irish Insurance Federation has a list of companies that sell pensions. Any company or intermediary associated with these organisation has met certain minimum standards for membership. Members of the IBA are currently required to have a £100,000 bond with a maximum payout of £50,000 per client.
These are small assurances for consumers in a grossly undersupervised section of the industry. The lack of protection for consumers purchasing products through financial advisers has been highlighted by the Consumers' Association of Ireland (CAI). When a consumer buys a financial product or service, the legal and financial protection depends on the product, the person from whom it was purchased and the laws governing that particular financial services area.
Legislative loopholes mean there are no regulations governing financial advisers and educational training or qualifications are done on a voluntary rather than mandatory basis. For those choosing a pension, the most important investment of their life, this is a extremely disheartening reality.
The good news is that within two years Personal Retirement Savings Accounts (PRSA) should come online. In order to bear the PRSA label, the product must have specific features and standards. The Pensions Board will oversee product development will require those selling the product to meet a certain level of training or education.
