Ireland offers many types of pension plans to its citizens, and if you are wondering what sort of a plan would suit your needs the best, then you must first understand the various plans that are offered so that making a decision becomes an easier process for you.
Before diving into the details of each plan, it is important to understand the broad categories into which these plans are divided.
There are mainly two broad categories: state pension plans and private pension plans. Since most state pension plans have a fixed age and rate of return, this article shall focus on the different types of private pension plans. But if you want to learn more about state pension plans, read this.
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Occupational plans
Many retirement plans have a defined age limit; learn more about the age of retirement in Ireland before reading further.
These plans are established by your employer and are further categorized into the following categories.
Contributory or non-contributory pension plans
A contributory pension plan is one in which both you and your employer invest in the pension plan. The percentage of the portion invested by you and your employer may vary depending upon the specifics of the scheme.
Funded or non-funded plans
Most occupational pension schemes are funded by employers and invested as a combined group of various plans by fund managers who invest this corpus into equities.
On the other hand, unfunded plans are considered more along the lines of the pay-as-you-go. There is no fixed minimum contribution, and the employer pays for your plan from their active account balance. The contributed amount can vary depending upon your employer’s ability to pay.
Defined benefit or defined contribution
A defined benefit plan is one in which the final amount is known to you at the start of your investment period. In addition to a defined benefit pension Ireland also offers another alternative known as a defined contribution plan where the monthly or the annual contribution is fixed and based on this contribution, your final corpus is decided.
If you are in a position to plan for the exact amount you’d require post-retirement, then the defined benefit plan is what you should go with.
On the other hand, your primary concern is not the total receivable but rather the amount of money you’d need to contribute now. Then, in that case, the defined contribution plan is ideal for you as it gives you the flexibility to invest based on your ability to invest rather than your goal.
Personal Retirement Saving Account (PRSA)
In this type of personal pension plan, the funding is managed by an investment firm or a life assurance agency. It works similar to an occupational pension scheme with the sole exception that your employer does not have to contribute to it but may do so if your organization’s policies allow for such an option.
Usually, such schemes are opted for by self-employed people, but salaried employees can opt for it as well; however, you can not have an occupational pension scheme and a personal plan if your current employer is funding the former.
The only circumstance where a salaried individual can opt for both is when the employer who is contributing to their occupational plan is different from that individual’s current employer.
Another drawback to having two pension plans is that only one of them would be free from taxation.
Retirement annuity contracts (RACs)
It is a truly personal pension scheme designed for individuals who are not enrolled in any occupational pension plans.
These plans, like personal retirement saving accounts, are provided by a life assurance firm and are essentially a contract between such a firm and the individual.
This plan can be understood as a form of contribution scheme, where the total corpus relies on the amount of investment that has been made up until the age of retirement.
Along with the amount of contribution, your total receivable is also subject to the cost of buying the benefit, which can be understood as the percentage of the money you will pay the investment firm as a fee for their services. This amount is usually deducted from the total receivable.
In conclusion, it is important to know whether you want your retirement corpus to be defined by the monetary contributions towards it. Or, do you want your contribution amount to be such that it is sufficient to meet your financial goals? But once you understand what you want, there will be a variety of schemes within that category. Therefore, your next point of research shall be focused on understanding the finer details of each scheme that various financial institutions are currently offering.
