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A Retirement Annuity Contract “RAC” is the formal name for what is normally called a personal pension. An RAC is a particular type of insurance contract approved by the Revenue. It is a defined contribution pension plan. The value of the ultimate benefits payable from the contract depends on the level of contributions paid, the investment return achieved and the cost of buying the benefits.
You can take out a Personal Pension if you have, or have had at some stage, relevant earnings. Relevant earnings are considered earnings from a job that are not being pensioned in a company pension plan or a self-employed trade or profession.

It is important to note that:

  • If you are included in a company pension plan only for a lump sum death-in-service benefit you are deemed to be in non-pensionable employment and to have relevant earnings for the purposes of a Personal Pension
  • If you have more than one source of earnings you can contribute to a Personal Pension plan in respect of any source of income that is not pensioned in a company pension plan
  • You can contribute to more than one Personal Pension Plan in any one tax-year
  • You can contribute to a Personal Pension Plan and a PRSA in any one tax-year
  • Individuals who do not have taxable earnings, such as the unwaged cannot take out a Personal Pension plan but may take out a PRSA.

Self-employed individuals who are members of an association or group representing the majority of members of a particular occupation may be able to join a group Personal Pension Plan set up under trust for that association or group, for example the Dental Association.  The same limits and restrictions apply as for insured contracts.

Normally it is the individual who takes out the Personal Pension Plan who contributes to the policy.  Often this is by direct debit to the insurance company concerned.  Each insurance company sets a minimum contribution and you need to contribute at least that amount in order to take out a Personal Pension Plan.

You are entitled to income tax relief on contributions paid to an RAC.  This relief is normally claimed back from the revenue in your annual tax return.  You can pay more contributions but the tax relief available will be limited.

The amount of tax relief you can get depends on your age.

Age Limit of net relevant earnings
Under 30 15%
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60 or over 40%

Should you contribute to both a Personal Pension Plan and a PRSA in one tax year, then the above limits apply to your total contributions to both arrangements.

If an employer pays contributions to a Personal Pension Plan, the employee will be taxed on these as a benefit in kind.  The employee can then claim income tax relief on these contributions as if he or she had paid the contributions.

When you take out a Personal Pension plan you will have a range of investment options. You should review the information provided on these options carefully before making any decisions.  It is important that you periodically review any investment decision taken, especially in the years running up to retirement as you may wish to protect any investment gains made.

You can take a benefit from a Persona Pension Plan at any time after age 60 but before age 75 and at any time in the event of serious ill health.  You do not need to retire in order to draw a benefit.  In the case of retirement due to serious ill-health, you will be deemed to be permanently unable to work.

The amount of your benefit will depend on the level of contributions paid, the investment return earned on those contributions and the cost of buying your pension. On retirement you can choose to take up to 25% of your retirement fund as a tax-free lump sum. The balance of the fund traditionally had to be used to purchase an annuity (a pension).  This annuity must be payable for the individual’s life.  All annuities in payment are subject to PAYE at source and the health levies.

It is possible in some circumstance to draw a benefit from a Personal Pension Plan in the event of serious illness.  The benefit payable is often greatly reduce as contribution have been pad for a short time ad the cost of buying a pension at a younger age is much higher than the cost at normal retirement age.  You may wish to consider take out some form of disability insurance to ensure an income is available in the event of disability, as the pension plan may provide no benefit for a benefit that would be insufficient in this event.

Should you die before you have taken a benefit from your Personal Pension Plan, then the value of your retirement fund is payable to your estate.  If you die within a few year of your Personal Pension Plan commencing the fund payable may be relatively small, due to the limited time over which contributions have been paid.  To provide a higher death benefit you may wish to take out additional life assurance.

All Personal Pension Plans taken out after 6th April 1999 can be transferred to another Personal Pension Plan.  This transfer value can also be paid to a PRSA, by mutual agreement between you and the insurance company concerned.

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Vision Financial Solutions LIMITED
• Address: 95 Ranelagh Village, Ranelagh,
  Dublin 6, Ireland
• Telephone: (01) 532 0082

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