1 Make sure your pension provider has up-to-date details for you
Your pension provider will calculate your benefits based on the details it currently holds on you – in particular, your salary.
Imagine you’re entitled to a pension lump sum of one-and-a-half times your final salary and your provider only has a note of your earnings from years ago – in such a case, your lump sum would be based on that considerably lower figure and you would lose out.
2 Hire an adviser
There’s a perception you can avoid fees and costs by not dealing with a financial adviser, where the opposite may be equally true – you can cost yourself considerably more by not taking advice and making the wrong decision, or missing an option that you simply didn’t know about.
3 Claim your State pension
At up to €219 a week for a 66-year-old, the Irish state pension is one of the best in Europe. To find out how to get it, visit www.welfare.ie.
4 Know your options with defined contribution
With a defined-contribution pension, the lump sum you take at retirement can be calculated in one of two ways.
The first is through a formula based on your salary and service that gives a lump sum equivalent to up to one-and-a-half times your salary. The second is based on the value of your fund where you can take a lump sum equivalent to 25pc of the fund. The first €200,000 of your lump sum is tax-free.
After taking your lump sum, you have a choice of converting the remaining amount into an annuity or an approved retirement fund (ARF – a personal retirement fund where you keep your money invested after retirement). Be aware that if you have taken a lump sum based on the one-and-a-half times salary rule, you are obliged to use the remainder of the fund to buy an annuity – a fixed income for life based on long-term interest rates.
Think about what happens should you die. An ARF can pass onto your spouse, whereas a single life annuity dies with you – don’t find out too late.
Think about inflation, too. Many people invest in ‘level’ annuities – that is, they get a flat amount of income in return for their fund. An annuity of €10,000 will lose over 30pc of its buying power in 10 years if inflation runs at 3pc a year.
5 Make sure your defined-benefit lump sum is calculated in the most advantageous way
Your pension lump sum from a defined-benefit scheme (if you are in one) is based on your salary and service and can be up to one-and-a-half times your ‘final remuneration’.
Ensure your administrator uses the highest possible figure – say you earn €30,000 as salary and you get commission of €30,000 a year. In such a case, the correct one-a-half-times lump sum is €90,000, not €45,000.
Those with defined-benefit schemes should also be careful not to sell their annual pension income for a lump sum. This is definitely one where advice is needed, as you can get very bad value for money if you do so.