Whether looking to draw down the state pension or starting a private pension for your retirement, different people will have different needs depending on their circumstances. We look at the different options available to consumers in today’s market.

1 State pension

There are two kinds of State pension, a means-tested one, paid only to people in very modest circumstances, and a contributory pension that is paid to people who have worked.

2 Non-contributory state pension

The non-contributory state pension is means-tested and is a payment for those over 66 who do not qualify for a contributory state pension or those who only qualify for a reduced contributory pension based on their insurance record.

3 Contributory state pension

The contributory state pension is based on the number of PRSI contributions made while in employment, and is not means-tested.

You can have other income and still receive a contributory state pension. This pension is taxable but you are unlikely to pay tax if it is your only income.

In order to be sure you are eligible for a state pension, you will need to contact the Department of Employment Affairs and Social Protection.

4 Employer pension schemes

The main benefit of being in an employer pension scheme is that the employer must make a contribution to your pension, even if it is only very small. Employers will take contributions directly from your salary, on which you don’t pay tax on. Most employer pension schemes today are defined contribution schemes, which means your pension income depends on the value of the company fund when you retire and annuity rates.

5 Additional voluntary contributions

Additional voluntary contributions (AVCs) are contributions you make to your employer pension scheme to build up an additional retirement fund. When you retire, this AVC fund can be used to top up your employer pension benefits, within Revenue limits.

6 Approved retirement fund

An approved retirement fund (ARF) is a personal retirement fund where you can keep your money invested after retirement, as a lump sum. You can withdraw from it regularly to give yourself an income, on which you pay income tax, PRSI and universal social charge (USC). The yearly drawdown requirement for those under the age of 71 is 4%, where funds are under €2m. For those over 71 years, a 5% drawdown still applies and a 6% drawdown applies for funds over €2m. You will be charged tax regardless of whether you have taken an income.

7 Personal pension plans

A personal pension plan is a private pension plan that is managed for you by a life insurance or investment company.

Anyone who is self-employed or who earns an income but cannot join an employer pension scheme can start a personal pension plan. Farmers looking to start a personal pension plan will need to set this up themselves, as well as arranging to pay their own contributions and claim the annual tax relief.

8 Personal retirement savings accounts

A personal retirement savings account (PRSA) is a type of personal pension that is more flexible than the traditional personal pension plan. All personal pension plans and PRSAs are set up as defined contribution schemes. As a result, the value of your pension at retirement is not guaranteed and will depend on the level of contributions you make, the growth of your pension fund and the charges you pay.

When looking to invest a lump sum, people want a secure investment opportunity that ideally will deliver a decent return on capital. We look at some of the more traditional forms of investment as well as some other more unusual investment opportunities

1 Deposits

Savings accounts, or deposit accounts, have traditionally been the most favoured savings option for Irish consumers.

However, because of record low interest rates in Europe (European Central Bank key interest rates are currently set at close to 0% and will remain so until at least summer 2019), returns from traditional deposit accounts are meagre (shown in Table 1).

Today, KBC Bank Ireland offers the most competitive rate in the Irish market for monthly savers with a 2.5% interest rate with its ‘‘extra regular saver’’ account. If you saved €250 per month, or €3,000 in the year, you would earn interest of just over €40 for the year on your savings. KBC’s offer allows customers to save a maximum of €12,000 per year.

EBS offers rates on deposit accounts of 1.75% up to a maximum of €12,000 saved per annum.

The main banks in the country (AIB, Bank of Ireland, Permanent TSB and Ulster Bank) offer rates from as little as 0.8% to highs of 1.35%.

2 Prize bonds

One of the most popular places where Irish people place their investments and cash are state-run prize bonds. Prize bonds are attractive as they attract no charge or fees and are 100% secured by the Irish State.

The minimum purchase for prize bonds is €25 (four prize bonds) up to a maximum €250,000 (40,000 prize bonds) per individual. Prize bonds never expire and can be held for as long as the individual chooses.

Prize bonds can be cashed any time after the minimum holding period of 90 days. On top of this, prize bond owners are entered into a weekly draw for cash prizes up to €50,000 and a €1m prize twice a year. Any winnings from these draws is tax free.

3 Government bonds

Investors with a lump sum they are looking to save for a short-, medium- or long-term period can also invest in Irish Government bonds. Again, these bonds are attractive as they are 100% secured by the Irish state.

Longer-term 10-year bonds offer returns of 16%, or 1.5% per annum, while shorter-term four-year bonds offer 2% returns over four years (0.5% AER). While modest, the returns are tax-free with no handling fees or charges deducted.

Minimum investments are €50 going up to a maximum investment of €120,000 per individual.

4 Stocks and shares

For those looking to invest in shares for the first time, there are some important details that are important to consider.

Firstly, if you are looking to trade shares for the first time, it is important to understand you will have to pay recurring fees to do this. However, online trading has made it much cheaper to invest in shares.

The cheapest rates for trading shares are for those willing to make their own decisions and analysis of the financial markets and different companies. Execution only share trading accounts can be set up for as little as €10 per trade, along with charges for foreign exchange rates or overseas trades.

However, if you wish to avail of professional advice offered by the stockbrokerage firms you will have to pay for it. Davy, Goodbody, Merrion Capital and Campbell O’Connor include some of the leading brokerage firms in Ireland and offer multiple options for investors depending on their trading preference.

Charges will vary depending on the broker and how frequently you are prepared to make trades. Obviously, the more you trade the cheaper it is to use the services of a broker. However, most investors like to buy and hold shares as opposed to trading frequently just for the sake of cheaper fees. It is also important to remember that stamp duty of 1% applies when buying Irish shares, while UK shares attract stamp duty of 0.5%.

5 Exchange traded funds

Exchange traded funds (ETFs), consist of a basket of stocks or investments around a specific sector or market. For example, you can purchase an ETF of the Irish stock exchange which performs in line with the collective performance of all the companies listed on the Irish stock market.

You can also invest in more sector specific ETFs such as agricultural commodities, finance, property, etc. ETFs allow you to invest in a basket of companies rather than being exposed to the risk of a single company or fund.

Wine

The effect of Brexit aside, returns from investing in wine actually outperformed the FTSE stock market in 2017. Investments in fine wine have been one of the best performing asset classes over the last two decades, particularly as wealthy consumers in Asia find a taste for high-end wines.

Wine is usually an investment held for a minimum of five years but has proven itself a major attraction when sold at auction.

When investing in wine, it is important that it is stored professionally, under the right conditions in order to guarantee the future value of an investment.

Stamps

Believe it or not, investing in rare stamps is quite a serious business. Over the last decade, returns from the GB250, an index which tracks 250 investment-grade British stamps, have averaged a compound growth rate of almost 9% per year.

Like many collectables such as rare coins, wine and vintage cars, rare stamps have benefitted from increased demand emanating from the burgeoning middle-classes in Asia, particularly China. It is estimated there are more than 60m rare stamp collectors worldwide today. Portfolios of rare stamps can be purchased from specialist stamp companies such as Stanley Gibbons in the UK, but minimum investments of £10,000 are typically required.

Cryptocurrency

Cryptocurrency is a digital asset designed to work as an electronic currency and a replacement for traditional, hard currencies.

The most famous cryptocurrency is Bitcoin, but there are more than 1,500 cryptocurrencies in issue today and the number is growing. Cryptocurrencies are typically characterised as being extremely volatile investments.

In 2017, a wave of market speculation saw the value of one bitcoin increase 19-fold in value, or more than 1800%, in a 12-month period to reach more than €16,700. After peaking in December last year, the value of bitcoin plunged sharply losing more than two-thirds of its peak value in the first quarter of 2018. However, the cryptocurrency bottomed out and one bitcoin is now valued at just under €5,400.

Peer-to-peer lending

Peer-to-peer lending, also known as P2P lending or crowd lending, is an online service that has been in existence since the mid-2000s, matching lenders with borrowers. For lenders, there is a potential to earn higher returns than traditional savings or investment products but the risk of default by borrowers is also higher. Companies such as LinkedFinance and Flender offer P2P investment opportunities in Ireland.

Real Estate Investment Trust

A real estate investment trust (REIT) is an investment company that owns, operates or finances income-producing properties or real estate. By investing in a REIT, you can place your money in a portfolio of properties without the risks of investing a significant amount of money in your own individual buy-to-let property. Irish-based REITs include Hibernia REIT, a Dublin-focused company and GreenREIT.

Long-term leasing

For some farmers retiring, the benefits of long-term leasing arrangements of their land now offers attractive returns that could be used as an income in retirement. Changes introduced in Budget 2015 provided for significant tax allowances for landowners leasing their land in a long-term arrangement.

Under the changes, a landowner can now rent their land for 15 years or more and will be exempt from income tax on an annual income arising from that lease of up to €40,000. Leases 10 to 15 years in duration can attract a tax-free income of up to €30,000, while up to €22,500 can be earned tax-free in a lease from seven to 10 years. Up to €18,000 can be earned tax-free in leases from five to six years.

All rental income is still subject to PRSI and USC under a long-term lease agreement.

Tax implications of investing

Consumers should be aware of the tax implications of savings and investments. Financial investments can be subject to stamp duty, capital gains tax and deposit interest retention tax, commonly referred to as DIRT.

DIRT

Any interest earned on money saved in deposit accounts with financial institutions such as banks, building societies and post offices is subject to a tax called deposit interest retention tax, or DIRT. For 2018, DIRT is charged at 37% on all interest payments. It was announced in Budget 2017 that the DIRT rate would decrease by 2% each year from 2018 to 2020 until it reaches 33%.

Income tax, PRSI and USC

Any dividend payments you receive from shares held or other investments will be subject to income tax, PRSI and USC.

Stamp duty

When you buy shares you must pay a once-off stamp duty on the value of those shares. This is usually done through the stockbroker. Stamp duty is typically 1% on purchasing shares.

Capital gains tax

Capital gains tax (CGT) is a tax charged on the profit, or capital gain, you make on the sale of shares. For example, if you bought shares at €100/share and offloaded the stock at €120/share, CGT will be charged on the €20 gain in the value of the share/asset. The standard rate of CGT is 33%.