Occupational pension schemes are set up by employers to provide pensions for their employees. There are two main types of occupational pensions:
- Defined Benefit schemes (DB)
- Defined Contribution schemes (DC)
Defined Benefit Schemes
With a Defined Benefit (DB) scheme your pension is based on your pay/salary at retirement or the average of salary held while you were a scheme member and the number of years you have been in the scheme. Your pension entitlement doesn’t depend on the performance of the various funds the money was invested in over the life of the pension. In general, you pay a set percentage of your salary into your pension fund and your employer pays the rest. DB scheme benefits are not guaranteed. If the scheme’s funds are not enough to pay the benefits, and your employer is not in a position to meet the shortfall, promised benefits may have to be reduced. DB schemes are becoming less common and few employers offer them.
Defined Contribution Schemes
With a Defined Contribution (DC) scheme the money you pay into the scheme is invested, for example, in different funds with the aim of giving you an amount of money when you retire. Your final pension is based on the amount of money paid in and on how the investments have performed. You will usually pay a percentage of your wages into the scheme and your employer will usually make contributions also.
If your employer does not provide you with access to an occupational pension scheme or if certain restrictions apply to their scheme, then you must be provided with access to a standard PRSA.
Additional Voluntary Contributions
AVCs are extra contributions you can make to an occupational pension scheme in the private or public sector, to increase your benefits at retirement. For example, you may want to use an AVC is if you do not have enough years of service to get the maximum pension benefits. More information can be found on the Pensions Authority of Ireland’s website
All occupational pension schemes are regulated by the Pensions Authority and more information can be found on their website.
What are your options at retirement?
You will have a number of options available to you at retirement including:
- taking a tax free lump sum
- receiving an annuity
- transferring some or all of your pension fund to an ARF or AMRF
- taking a taxable lump sum.
More information on your options at retirement can be found on the Pensions Authority of Ireland’s website.
Last updated on 9 March 2021