Starting new pension

kevhenry

Registered User
Messages
65
Another point on drawdown is that when you reach age 65 your personal tax thresholds change.

A retiree with a financially dependant spouse can earn up to €36,000 a year before paying income tax i.e. they can earn €3,000 a month tax free.

Anything over that is then taxed at the marginal rate.

Given that the state pension is around €2,000 a month for a married person with a financially dependant spouse this leaves the potential to earn an additional €1,000 a month tax free.

A fund of €400,000 is a hugely tax efficient target to have because you get;

1) A Tax Free Lump Sum of €100,000 (25%)

2) 0% income tax on the remaining balance of €300,000 if annuitised at 4% giving (€300,000 x 4%) = €12,000 a year / €1,000 a month.

Total income = €2k from state + €1k private pension = €3k per month

This means that a pension investment;
  1. Receives tax relief at your highest rate on all contributions (i.e. up to 40%)
  2. Gets to grow tax free all the way along in that there is no exit tax, capital gains tax or DIRT tax applied (Of course, that's not to say that another government levy as per the 0.6% applied from 2011-2014 won't ever happen again)
  3. Tax free lump sum at retirement - in this case €100k
  4. Tax free income on the €300k balance

Kevin
www.thepensionstore.ie
 
Last edited:

gnf_ireland

Frequent Poster
Messages
1,388
A retiree with a financially dependant spouse can earn up to €36,000 a year before paying income tax i.e. they can earn €3,000 a month.

Anything over that is then taxed at the marginal rate.

Given that the state pension is around €2,000 a month for a married person with a financially dependant spouse this leaves the potential to earn an additional €1,000 a month tax free.
Is this correct? Surely you mean they can earn up to 36k a year at the lower rate of income tax rather than the marginal rate
 

gnf_ireland

Frequent Poster
Messages
1,388
Over 65s get three tax reliefs than under 65s don't get.

One of these is no tax if you earn under 18k / 36k.
Sorry I had absolutely no idea that the over 65's were entitled to that level of income tax free - not something I had to personally worry about. That is one serious benefit !
I would really question the need for (and equality of) this exemption. Surely a couple in their 30's earning 36k are equally in need of having the income tax free than someone in their late 60's !

Somehow, I would not guarantee on that still being in place in 20 years time when the OP is due to retire !!
 

kevhenry

Registered User
Messages
65
Yes, it's a huge benefit and one that the vast majority of people aren't aware of.

On your other point, a couple in their 30's are likely more in need of this exemption than a retired couple but the reasoning is that the now retired couple have 'paid their dues' and are now entitled to benefit from a more favourable tax regime given the assumption that they will not be working.

And, No, it's not guaranteed to be there in 20 years but I personally can't see it being changed too much if you take what happened with the medical card debacle a few years ago.

Kevin
www.thepensionstore.ie
 
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