Self-Invested Personal Pension
A Self Invested Personal Pension is a retirement structure that allows the holder significantly more flexibility with regard to an investment strategy than is available with the traditional insured personal pension arrangement. Traditionally most pension plans are invested in managed funds through a life company. Self-Directed Pension Plans are becoming more popular for clients who want much more flexibility and control over the assets in which their pension fund can invest.
A Self-Directed retirement vehicle allows holders to invest in various assets classes of their choice such as direct property, shares, commodities, ETFs, bonds or bank deposit accounts. Lending for a property purchase within the fund is permitted. All rental income, investment income/gains and cash deposit interest is free from tax interference within the pension structure. There are some restrictions on the types of investments that the fund can make as outlined below:
- Self investing is not allowed. Investments have to be ‘at arm’s length’, so for example, a holder cannot use the pension funds to purchase a property for their own use or in connection with their own business or family. However, the fund can purchase an investment property which can be rented (tax free) to an unrelated party.
- Investing in pride in possession articles is prohibited such as, for example, vintage cars, art or fine wines.
Tax Relief/Net Relevant Earnings
Holders of such retirement structures can receive full income tax relief at their marginal tax rate on their pension contributions. However, there are limits to the amount of tax relief that can be claimed. As highlighted in the table below, these limits are determined by the individual’s age and is a percentage of their Net Relevant Earnings, up to an “earnings ceiling” of €115,000. The holder is entitled to pay their pension contributions monthly or annually by direct debit or can pay a “once-off” contribution by the end of the tax year depending on their taxable earnings.
|AGE||% of relevant earnings eligible for tax relief|
|Under 30 years||15%|
|30 – 39 years||20%|
|40 – 49 years||25%|
|50 – 54 years||30%|
|55 – 59 years||35%|
|Over 60 years||40%|