3 October 2014
    
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Retirement Planning
by Fachtna O'Mahony
 

As people consider retirement and the later years of their lives, issues such as maintaining a standard of living, succession planning, state pension entitlements and in particular taxation tend to take centre stage in their lives and rightly so for if not then they are most likely going to lose out somewhere and not provide for the next generation as well as they could.

One often hears the phrase "you can't take it with you" which is of course stating the obvious, however when it comes to succession planning and taxation I'm more inclined to say "plan carefully or the State will take it off you".

Generally people have a decent handle on their pension entitlements be they occupational pensions or private pensions through their pension administrators. If not then I'd strongly advise meeting with their advisors to discuss their options to optimise tax free lump sums etc. You should also note that the pension legislation is rather fluid at present so make sure that you are fully informed of the impact of these changes on your personal situation.

Entitlement to the State pension is rather complex in particular if you had different PRSI contribution rates over the years or worked outside the state for any period of time. I'd advise everyone even those not close to retirement to check their PRSI history with the Department of Social and Family Affairs as it can happen that your record may not be entirely accurate. An online application for your history can be made on www.welfare.ie and takes about 10 days or so to be processed. I had a client once who had been refused the full pension as he didn't have enough contributions but when we examined his history for him he was missing 4 years of contributions in the 1980s as the construction company he worked for hadn't made P35 returns so his record with the department was incomplete. However he was able to prove his contributions in those years and after a minor delay got his entitlement to the full pension, something which caused him a lot of unnecessary stress for a time but was avoidable had he done his research in advance.

Those that do have both private and state pensions should be aware that both are taxable once over the exemption thresholds of €18,000 and €36,000 respectively for single or married couples, again something which is often overlooked as people plan their disposable income.

One final but crucial point when planning to optimise the State pension is that your spouse may be entitled to a State pension in his or her own right and again checking the PRSI history and projecting and planning future PRSI Contributions is crucial here. People should also be aware that your entitlement to the maximum old age pension of €230pw is based on your PRSI history however the increased qualifying adult (IQA) portion in respect of your spouse which is a maximum of €153 if <66 and €206 if >66 is means tested, there is no automatic entitlement. Therefore if not entitled to a Pension in his or her own right you need to position your affairs or more to the point the affairs of your spouse to satisfy the means test criteria prior to making your pension application. Again a real life example I experienced helps demonstrate this. A 63 year old person sold his business for €2m and put the proceeds on deposit in joint names with his wife. Just prior to becoming 66 he sought some advice in completing aspects of his OAP application. I advised him to close the joint deposit account and put the funds in his own name before he made the application thus paving the way for them to receive the IQA element of the Pension in respect of his spouse as well. If the funds had remained in joint deposit she would have failed the means test and would not have been entitled to the IQA element of the Old Age Pension.

The making of a Will clearly is something that deserves a lot of attention and best practice is to make sure you make a Will even though this invokes a thought process that many are uncomfortable with.  As importantly however, revisit your Will on occasion if your circumstances change and most certainly make sure your Solicitor or Executor is made aware of your Schedule of Assets (which should be constantly updated) and where they can get documents in relation to your assets such as Title Deeds, Life Policies etc. It never ceases to amaze me how many people procrastinate when faced with making a Will or indeed once made how Assets of a substantial nature can be omitted or neglected. If you don’t make a Will there are intestate laws to dictate how and where your Assets are distributed however this process is going to take time to complete and most certainly lead to additional costs being incurred.

Depending on the complexity of your Estate it is usually beneficial to seek taxation advice in advance of making or changing your Will. In recent years the Tax Free Thresholds from Capital Acquisitions Tax (CAT), the tax payable by your next of kin on inheritance of assets, has fallen from a peak of €543k to €225k and the tax rate has increased from 20% to 33%. To put it another way if you had total assets of €1.5m and left it equally to 2 children, where once they would have paid a total circa €80k in CAT between them, they are now facing a liability of €346k between them. This unfortunately has led to situations where the children as beneficiaries have had to sell their inheritances to fund the CAT liabilities on their inheritances or assets that their parents spent a lifetime building to secure the financial future of that next generation.  It’s important to take advice early as some tax planning of your estate can optimise the situation and reduce the tax liabilities faced by the next generation substantially.

Among other considerations, you should look at your banking situation. Many prefer not to spend time standing in queues in the Post Office or their Bank Branch and even in the most simple of situations it can cost €200pa to run a current account.  Some banks offer better terms to over 65’s and all banks are encouraging their customers towards online banking at this stage. You should get comfortable with internet banking, indeed the internet in general as most of your interaction with your bank and other organisations will be via the internet going forward.

If you would like to discuss any of the topics outlined in this article contact Fachtna O'Mahony on 0214 4641400 or email fachtna.omahony@quintas.ie

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