Pensions Flashcards
What percentage of the industrial wage does a state pension give you?
34%
What is the average length of retirements?
24 years
How can we reduce the pressure on the pension
- More tax increase or more people working)
- Increase the pension age
- Decrease the pay out
Defined benifit
Guaranteed pay out
What are the 3 pillars of pension?
State, occupational, private/personal
What is another name for the social insurance pension?
Contributory
How does contributory state pension determine how much you are entitled to
You get 1/40th of a pension for every year that you work
Is the contributory pension means tested?
No, as long as you have contributed to PRSI
What are the requirements for the contributory state pension
- Over 65, begins at 66
- Retired from full time work
- Satisfy PRSI contributions
What is another name for a non contributory pension?
Social assistance pension
When do you get the social assistance pensions
When you don’t qualify for a contributory pension and your income is below a certain level
Is the non contributory means tested
Yes
What is the difference between non contributory and contributory in terms of weekly payment
€5
What is pre retirement allowance
Allows a person in recipe of long term unemployment benefits to exit the labour market and receive weekly payments instead of unemployment assistance.
Benefits of pre retirement allowance
- No sign on
- Automatic payments into accounts
What are the rates for pre retirement allowance?
Same as unemployment assistance
What extra benefits do you get with pre retirement allowance?
Rent supplements, Esb allowance, tv license, fuel allowance
What principles are the state pension built on?
Contributory principal and principal of solidarity
Contributory principal
You are entitled to what you put in
Principal of solidarity
Provides income for the venerable
Tripate system
The pension is paid for by the tax payer, employer and if there is a short fall the state (exchequer)
What is the social insurance fund (SIF)
A fund that all social welfare goes into
What happens if there is an excess in the SIF
It is invested and the profits are put into the social insurance fund
What happens if there is a deficit in the SIF
The state steps in and acts as an exchequer to meet the short fall
Who manages the SIF current account
minister of employment affairs and social protection
Who manages the SIF investment account
minister of finance
Occupational pensions
Provided through an employer in a private and public sector jobs
What are an employers obligations in terms of an occupational pension?
They must facilitate it through pay role and can contribute but are not required to.
What are the 2 types of occupational pensions
- Defined benefit
- Defined contribution
Defined benefit
Pays out a set amount every week when you retire, this never changes
How is a DB pension payout calculated
Based on your years of service you usually get 1/60th - 1/80th of your weekly salary for each year worked
What are the benefits of a DB pension
- Plan your income
- Simple to understand
- You don’t assume the longevity risk
What are the drawbacks of DB schemes (2)
- Don’t account for the time value of money
- Many schemes are in deficit because of longevity = less reliability.
Defined contribution (DC)
Employees and employers contribute to a fund that is invested over time and used to buy an annuity or pension on retirement.
What does the level of pension depend on in a DC scheme?
- Investment performance
- Amount contributed
- Cost of pension/annuity
How are your pension entitlements calculated in a DC scheme?
You decide how much to contribute and that contributions is used to buy an annuity on retirement
Can you change contributions on a DC?
Yes
Who BUYS a private pension?
Those who don’t have access to an occupational scheme - self employed
RAC
A personal pension that gives a lump sum and pension on retirement
If you have an occupational pension what types of private pensions can you get?
AVC PRSA not an RAC or PRSA
What is a universal pension scheme
All your contributions from multiple jobs in one place
Longevity risk
The risk of you outliving your pension.
How has the demand for long term care affected pensions
We now need longer real pensions
What happens when you pay into a pension fund?
You pay into a fund that invests the money in different assets, this is then used to buy a pension/annuity on retirement
Where do pension funds invest?
- Cash: less risky
- Bonds
- Stocks/equities: very risky
What is an AVC
A top-up for an occupational pension
What is the maximum you can put in an AVC
5 time your employer’s pension contributions
What is a free-standing AVC (FSAVC)
An AVC than is under the control of the employee
Why are people getting AVC’S?
Private pensions will fail to provide the minim benefits allowable
If your pension doesn’t account for your spouse what can you do to get this?
Get an AVC
Who takes out RACs
Self-employed people who are not part of a company scheme
What type of pension is an insurance contract
RAC
What type of pension plan is a RAC (DB/DC)
DC
What are the types of RAC
- With profit
- Unit linked
- Deposit account plans
What is the difference between with profit and unit inked policies?
With profit are managed by the insurer, unit-linked are when the insured chooses to buy units in a fund run by the insurer and they can move the money around.
Can you have a RAC as part of an occupational scheme?
No
Can you have more than one RAC
Yes
What are the requirements for a RAC?
Taxable income
What can you do with a RAC on retirement?
Take 25% lump sum tax-free
When do you get the benefits of a PRSA
60 or earlier in death of incapacity
PRSA
A personal retirement savings account that requires no taxable income
What are the 2 types of PRSAs?
Standard (only invest in unit-linked funds) and Non-standard (wider investment options)
Can an employer contribute towards a PRSA
Yes
ARF - approved retirement fund
You build up money in a fund to buy this or a pension. It’s like an investment account that you own and take a weekly income from when you retire
When must you invest in an AMRF?
If you haven’t got a guaranteed pension of €12,700 a year for life you must invest proportion in an ARMF
What is an ARMF and when can you access it?
It is a fund you can’t access until you are 75, but you can access 4% per year from the age of 65 to 75
Who assumes the longevity risk in and AMRF
You do
Annuity
Provides you with a guaranteed income for €190 per year
Enhanced annuity
Opposite to life insurance, as your mortality increases, you get better rates
When do annuities pay put if you become terminally ill
If stipulated in the contract
Benefits of ARF
Gives you more but it is riskier
What happens when a pension scheme becomes insolvent?
Pensioners get everything first and then employees get what is leftover
How do the amendments to the pensions act affect pension wind up
People who haven’t retired, people who have retired and workers still get all their entitlements and pensioners get what is left
Social welfare and pensions act 2009
Government offers to become a pension provider
Universal pension enrolment
Automatic if you are employed full time earning €20,000 pery ear
