Q. I am 35 years old and self-employed (and probably will be in the near future) and want to build and manage my own pension using my sole proprietorship. I’ve heard of small self-directed pensions and self-directed trusts, but what is the advantage of these over other options? Would I have more choices and options this way than just taking a PRSA route? Eddie, County Wexford
. The retirement system is far from straightforward, so I’m not surprised that you are unsure of your options. In fact, you have the choice between three distinct types of pensions as an individual entrepreneur. Insurance companies offer both personal pensions and PRSAs, while independent trustees and stock brokers offer a self-administered PRSA.
Unfortunately, small self-administered pension plans are only accessible to business executives and employees. The Standard Personal Retirement Savings Account (PRSA) was originally created to provide a highly transparent and regulated pension structure primarily for smaller pension funds. The fees are typically an annual management fee of 1pc per year and a contribution fee of 5pc (if your advisor takes a commission). These are fixed and must be approved in advance by the Pensions Authority, although the choice is limited.
A non-standard PRSA provided by an insurance company is very similar but offers a wider choice of funds.
The next option is the self-administered ASRP which can be achieved through independent directors and certain investment dealers. These can be cheaper, with a typical base management fee of 0.5 pc. The investor has a much wider choice of investments, including direct stocks and bonds, ETFs, listed funds, etc. However, your underlying investments are not included in this basic management fee, so the overall cost may be higher if you invest in expensive investment funds.
If you invest in direct stocks or low cost index funds, this option will often be cheaper than insured PRSAs. The self-administered PRSA requires more maintenance, and in my experience the after-cost return on investment for those who directly manage their pensions is often less than that of a simple low-cost index fund.
The third option available to you is a personal pension from an insurance company. These are similar to non-standard PRSAs but without the rigid pricing structure. Management fees can start from as low as 0.35% for Vanguard index funds with an insurance company, but choose your advisor carefully, as high commissions may be available on personal pensions.
In summary, the self-directed PRSA or personal pension gives you much more flexibility in investment choices and fees, but they require more maintenance and caution. The standard PRSA is a very low maintenance option, with some very good investment funds included with some providers, but the investment choice and pricing structure is fixed.
Should we get married for financial reasons?
Q. My partner and I have been together for five years, but we are happy as we are for the long term, that is, we have no plans to get married. However, some family and friends have said that we should at least think about it, especially considering that we are planning to buy our first home next year, due to what they say are the benefits in terms. joint taxation but also in terms of home ownership and children. I thought things had changed in that getting married was no longer something that couples had to do. Am I wrong?
Doireann, Co Dublin
A. It is clear that tax efficiency is not a valid reason for getting married, but the tax authorities do not make it easy for couples. Cohabitation is more and more common in Ireland and this is an area of our tax code that needs to be reformed.
Unfortunately, our tax system still does not recognize cohabiting couples who are not married or who have registered a civil partnership. Couples who cohabit are treated as two single people and therefore you cannot benefit from the three main tax advantages that married couples can enjoy.
First, you can’t claim your partner’s unused tax credits, or transfer tax credits between the two of you. This can be very beneficial if one of you is not currently working or working with a low income.
The second benefit is the tax-free transfer of assets between civil partners or married couples. This is particularly relevant for real estate property, but also applies to investments. This can be useful for claiming tax credits on rent, dividends or investment income, but also for exhausting the personal annual capital gains tax allowance or old capital allowances. This possibility of transferring assets tax-free gives more flexibility. Since you are planning to buy your first home and have been together for five years already, you are both protected to some extent if your relationship ends. You can choose to enter into what’s called a cohabitation agreement, a contract that defines your financial interests in shared ownership.
The third, and perhaps the most unfair, difference between married couples and cohabiting couples relates to the Capital Acquisition Tax (CAT). If either of you dies, you may have to pay a large CAT bill on your partner’s share of property, which can be a major problem for the surviving spouse. While civil partnership is not an option, there are certain life insurance policy structures that can protect each partner from this liability. Singles are only entitled to a tax-exempt gift or inheritance of € 16,250. All gifts or inheritances above this amount are taxed at 33pc. I would highly recommend getting financial planning and tax advice to understand the implications and structures available to you before buying a home.
Find a lost will
Q. My uncle passed away a few years ago and my father was the executor. However, my father has since passed away and we are trying to establish how my uncle’s property was divided between him and his other siblings, and the will may help resolve it, but we cannot find the relevant document. Is there a way to access the details of their will, even if I am not the executor? Dan, Co Offaly
A. The first thing I would recommend, Dan, is to appoint a legal professional. Amid current Covid restrictions, the probate process is taking longer than normal.
The first stopover point for your legal professional is to find out if a probate authorization has been issued following the death of your uncle. If a probate grant has been issued, the will should be in the public domain.
If it has not been issued, the certification process will have to be started. It may also have already started as part of your late father’s probate process. Your legal representatives can contact your late uncle’s legal team to find out how far this process is. In my experience, the probate process is rarely straightforward, especially if there are assets held overseas or more complex ownership of assets held here.