Looking for some advice, my personal pension matures in September, and was thinking of using the 25% lump sum to supplement my 4% withdrawal from the ARF until my OAP is payable in 7 years time (hopefully) where would be a good place to put it ,where I would be making monthly or 1/4 withdrawals, the value is around 190k, thanks
Where to put tax free lump sum
- Thread starter Shelby219
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Your ARF will be generating just over €20kpa. Will you have any additional income between retirement and State pension age?
This level of income would have deductions of just under €1,400 and still be within the 20% income tax band.
If you were willing to continue to complete a self-assessment tax return you might be better off with investments which generate “income” such as dividends.
A detailed analysis of taxable investments can be found here
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Steven Barrett
Registered User
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How much of it are you looking to use to supplement your income? If all of it, leave it all in cash. You can put some of it in State Savings and some in a regular deposit account.
If there is going to be surplus cash after your intended expenditure (plus a margin for those unplanned expenses), invest it.
Steven
www.bluewaterfp.ie
If there is going to be surplus cash after your intended expenditure (plus a margin for those unplanned expenses), invest it.
Steven
www.bluewaterfp.ie
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I think it's a mistake to look at individual sums in isolation - it's your overall position that matters.
So, rather than looking at the lump sum alone, I think the more important question is how to allocate the €760k in your pension.
Let's say you decide to maintain a (roughly) balanced allocation of 50% in equities and 50% in cash/fixed income (which is probably about right in your circumstances).
You could keep, say, €50k of your lump sum on deposit and invest €140k in tax-free State savings products (across a mix of 3, 4 and 5 year products).
75% of your ARF could then be invested in a global equity fund, with the balance in a Eurozone Government bond fund.
Obviously any other savings/investments outside your pension should also be taken into account.
So, rather than looking at the lump sum alone, I think the more important question is how to allocate the €760k in your pension.
Let's say you decide to maintain a (roughly) balanced allocation of 50% in equities and 50% in cash/fixed income (which is probably about right in your circumstances).
You could keep, say, €50k of your lump sum on deposit and invest €140k in tax-free State savings products (across a mix of 3, 4 and 5 year products).
75% of your ARF could then be invested in a global equity fund, with the balance in a Eurozone Government bond fund.
Obviously any other savings/investments outside your pension should also be taken into account.
Thanks for the replies, I should expand on the finances, I will still have my own business, sole trader, (retail with an owned premises, no loans or mortgage ) net profit circa 100k, I can take some of this as drawings and put 40% into another smaller pension (which I started a few years ago in case I didn't fully retire.) So now with the present covid 19 restrictions all my travel plans are on hold , so probably continue to work but less hours and let my son take on more of the work, I would also have around 100k in shares and ILife savings, thanks in advance
If you are still working, why not leave your personal pension alone until you retire?
It definitely makes sense to keep maximising your pension contributions for the time being but I'm curious why you felt the need to set up another pension - is there some reason why you couldn't use the personal pension?
It definitely makes sense to keep maximising your pension contributions for the time being but I'm curious why you felt the need to set up another pension - is there some reason why you couldn't use the personal pension?
I'd start by having words with your accountant. With that level of turnover and a family member working in the business, was a Ltd company ever discussed?
Unless you have a guaranteed annuity rate on the Personal Pension you could be better off moving into a series of PRSAs and simply retiring bits of your pension as you go along but you certainly don't need to retire the pension now as you will be able to continue to make tax free gains.
Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
Unless you have a guaranteed annuity rate on the Personal Pension you could be better off moving into a series of PRSAs and simply retiring bits of your pension as you go along but you certainly don't need to retire the pension now as you will be able to continue to make tax free gains.
Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
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The reason a second was set up was that my original one had been taken out with Canada Life, and I contributed to this the same amount every month and then topped up the difference depending on profit each October , I would then sometimes increase the monthly contribution if I thought business was going well, then in 2016 I was told by Irish Life that I was no longer able to add lump sums to this policy even though I queried this at the time , and was told I would have to start a new policy for any lump sum contributions. Do you think I was given wrong information?
I really don't know, to be honest, but it seems a bit odd to me.
I’d have to look at the contract. I’ve seen a lot of Canada life policies that Irish life were very keen to keep hold of because the charges were very good (high) from their perspective.
If it’s an old style contract you will have initial and Accumulation units. If the initial period wasn’t long enough Irish life might have found themselves paying a commission that they couldn’t recoup.
As I say, I’d have to look at the actual policy document and schedule.
The consideration around a limited company and an exec occupational pension would have made that all a moot point in any event.
Still worth considering multiple PRSAs subject to a more detailed analysis of the RAC.
If it’s an old style contract you will have initial and Accumulation units. If the initial period wasn’t long enough Irish life might have found themselves paying a commission that they couldn’t recoup.
As I say, I’d have to look at the actual policy document and schedule.
The consideration around a limited company and an exec occupational pension would have made that all a moot point in any event.
Still worth considering multiple PRSAs subject to a more detailed analysis of the RAC.
Going back to the ARF, my present Life Co adviser/agent (for that company) has said initial commission is 3% and there is NO trail commission, and 102% allocation on my 570k , investment, where as an initial meeting with a broker who said he has no bias to any life company, has mentioned a trail of .5% , no mention of any other fees , or allocation yet, my question is , does the Life Co offer look better and what other questions should I be asking, thanks in advance
Others are more qualified, to explain the two different offers, but i would certainly ask what the timeline committment is, for both offers.
It looks like it might be 5 years, for the 102 % allocation offer, as they have to recoup that 2% back so you would be locked in for that period with stiff exit penalties i’d say. I’d also double check the AMC on the same offer, 3% upfront seems quite high, but partially offset by an extra 2% allocation, and a zero trail ?, seems to good to be true. Is there ongoing advice ?
It looks like it might be 5 years, for the 102 % allocation offer, as they have to recoup that 2% back so you would be locked in for that period with stiff exit penalties i’d say. I’d also double check the AMC on the same offer, 3% upfront seems quite high, but partially offset by an extra 2% allocation, and a zero trail ?, seems to good to be true. Is there ongoing advice ?
Please remember that an “increased allocation“ isn’t really the benefit it seems.
it is sold like this “I’m getting 3% commission, but the life company is paying 2% of that by the increased allocation”
it actually works like this
you give the company say €100,000 they purchase units with 102% allocation so €102,000 - so far so good
then they apply their annual management charge to the €102,000
A typical life company contract costs over 2%pa when properly disclosed.
So each year you are paying a couple of grand in fees and if you try to break the contract the additional fees are recouped by way of an early surrender penalty.
For example and this is a very rough illustration
Clearly there is no such thing as a free lunch here and for that size of fund better off paying a fee for clear objective advice
Equally if anyone has an existing contract with a statement in writing to the effect that the 102% allocation means it will only effectively cost you 1% then in principle you would have a case to have the contract set aside on the grounds that you have been misled.
open the floodgates on that one!!
calendly.com
it is sold like this “I’m getting 3% commission, but the life company is paying 2% of that by the increased allocation”
it actually works like this
you give the company say €100,000 they purchase units with 102% allocation so €102,000 - so far so good
then they apply their annual management charge to the €102,000
A typical life company contract costs over 2%pa when properly disclosed.
So each year you are paying a couple of grand in fees and if you try to break the contract the additional fees are recouped by way of an early surrender penalty.
For example and this is a very rough illustration
| Amount | € 100,000 | |||
| Allocation | 102% | |||
| Invested | € 102,000 | |||
| Illustrative Annual fee | 2.41% | using Irish Life MAPS 4 Investment Bond product as a proxy because fee disclosure for ARF is opaque | ||
| Commission | 3.00% | |||
| Commission Paid | € 3,000.00 | 5% Growth | Charge | |
| Year | 1 | € 107,100 | € 2,581.11 | |
| Year | 2 | € 109,744.83 | € 2,644.85 | |
| Year | 3 | € 112,454.98 | € 2,710.17 | |
| Year | 4 | € 115,232.06 | € 2,777.09 | |
| Year | 5 | € 118,077.71 | € 2,845.67 | |
| Cummulative Charges | € 13,558.89 | |||
| It looks like the commission is "only 1%" when you focus on allocation rates | ||||
| For illustrative purposes only |
Clearly there is no such thing as a free lunch here and for that size of fund better off paying a fee for clear objective advice
Equally if anyone has an existing contract with a statement in writing to the effect that the 102% allocation means it will only effectively cost you 1% then in principle you would have a case to have the contract set aside on the grounds that you have been misled.
open the floodgates on that one!!
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@Shelby219
Don't be distracted by the allocation rate. Focus on the Annual Management Charge.
With that level of ARF investment you should be able to negotiate an AMC of circa 0.5% (with a PRIIPS cost disclosure comparable to TER - or Ongoing Charges Figure (OCF) used by UCITs in their KIIDs) of no more than an additional 0.1% for a managed type fund.
Gerard
www.prsa.ie
Don't be distracted by the allocation rate. Focus on the Annual Management Charge.
With that level of ARF investment you should be able to negotiate an AMC of circa 0.5% (with a PRIIPS cost disclosure comparable to TER - or Ongoing Charges Figure (OCF) used by UCITs in their KIIDs) of no more than an additional 0.1% for a managed type fund.
Gerard
www.prsa.ie
Dave Vanian
Registered User
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Are you aware of anyone in Ireland who has actually had their contract set aside on these grounds? Are you aware of any legal cases in Ireland where this argument has been made? If so, can you give examples, keeping personal details hidden if necessary?
After meeting with my accountant and their financial planner,(a new addition they now have) I was advised that as I was in reality going to phase my retirement over the next 5 years or so , and am not in need of the money at the moment, I would be better off moving my funds to a self administered pension ,where I would be able to cash in , as I needed it ,and also it would be more tax efficient and the charges are more transparent.l would then move to Self administered ARFs as I retired each section of the pension (my layman's term).
Does this sound the right way to go? Then the next query would be what type of funds etc to invest the money in and in what percentages, I have already shown some suggestions which I can post later.
Thank you