PROTECT YOUR LEGACYSuccession Planning for your Approved Retirement Fund

By using a small proportion of the value of your pot on an annual basis to pay for a life insurance policy, which can be used to help pay this tax, you can cover the income tax bill that will become due. 100% of your child’s inheritance from your retirement fund can be protected.

You can avail of the tax relief on your pension contributions*, tax-free growth on its investment and you can take a tax-free lump sum at retirement of up to €200,000. However, if you were to pass away, what you leave behind as a financial legacy, including your pension, will more than likely be subject to tax.

Instead of leaving a tax bill of 30% of your nest egg behind for your loved ones to pay, you can take care of it by preparing for it now.

If you leave your Approved Retirement Fund (ARF) to your spouse when you pass away they won’t pay inheritance tax on it. However, any money they may withdraw will be subject to income tax. After your spouse has passed away, the retirement fund may then be left to your children.

Saving enough of your hard-earned money into your pension to prepare for retirement is a good idea.

If you leave your pot to your child who is 21 or over, they will be subject to income tax of 30% on it, regardless of the amount that they receive.

Protecting your Retirement Pot

When they inherit it, your loved ones will usually be charged tax on the money that you have saved into your retirement fund. Income tax, at a rate of 30%, can be charged. By setting up a life insurance policy which can be used to help pay this tax, you can protect your family by covering the tax bill.

Your Total Retirement Fund

Think of your total retirement fund as a pot.

Total Retirement Fund 30% Income Tax Life Insurance Policy

*Limits apply

You might be familiar with what is known as a Section 72 life insurance policy which is used to help offset an inheritance tax liability. It is a special insurance policy approved by the Revenue Commissioners under Section 72 of the Capital Acquisitions Tax Consolidation Act 2003 and it is taken out specifically to help pay inheritance tax. The money paid out, when it is used to pay inheritance tax, is then not subject to tax.

You may leave your Approved Retirement Fund to your husband or wife to make use of when you pass away. It won’t be subject to inheritance tax but any money they take out of it will be liable to income tax.

• If they decide to cash in the entire fund it will be subject to PAYE at the marginal rate (plus PRSI and USC).

• If they don’t take any money out, the fund will still be subject to tax. From the year they turn 61 ‘Imputed Distribution Rules’ apply which means income tax is payable on an annual minimum withdrawal amount.

And when your spouse passes away the retirement fund may then be left to your children.

Alternatively, you could consider leaving your retirement fund to your children.

• The tax treatment of it will depend on the child’s age.

• If they are 21 or over it will be subject to income tax at 30%.

However, did you know that a Section 72 life insurance policy can also be used to help pay the income tax due on an ARF inherited by a child over the age of 21?

You can set up a Whole of Life insurance policy under Section 72 to:

• Protect your hard-earned legacy by pre-funding the income tax liability on your retirement fund that your children over age 21 would have to pay if they inherited it.

For more information on this type of policy and protecting your family’s finances, contact your Financial Broker.

Leaving your Retirement Fund as a legacy

01/2020 1407.3

Royal London47-49 St Stephen’s Green, Dublin 2

T: 01 429 3333 F: 01 662 5095 E: service@royallondon.ieroyallondon.ie

Royal London Insurance DAC is regulated by the Central Bank of Ireland. Royal London Insurance DAC is registered in Ireland, number 630146, at 47-49 St Stephen’s Green, Dublin 2.

Royal London Insurance DAC is a wholly owned subsidiary of The Royal London Mutual Insurance Society Limited which is registered in England, number 99064, at 55 Gracechurch Street, London, EC3V 0RL.

This flyer is for illustration purposes only and does not form any part of any contract. The information within this flyer is for guidance only and you should seek professional tax and legal advice which takes into account your own personal circumstances.