Why save for retirement?

It is important to put some time into planning your pension. The choices you make will have an impact on the income you will get when you retire and the lifestyle you will be able to afford.

Planning your pension might seem like a complicated task, but the earlier you get started the better, as this will give you more time to make contributions, and more time for your pension fund to grow in value.

In the pensions section we explain the different types of pensions that might be available to you through your employer, and personal pensions which are usually taken out by people who are self-employed or company directors.

Who regulates pension plans in Ireland?

The Pensions Authority regulates occupational/employer pension schemes and Personal Retirement Savings Accounts (PRSAs) in Ireland. The Central Bank of Ireland regulates the companies (such as banks, life assurance companies and investment firms) that provide personal pension plans and PRSAs.

Benefits of pension plans

A pension is basically a long term investment plan, where you save regular amounts or lump sums known as “contributions” to build up your retirement fund. There are a number of benefits to using a pension plan:

  1. Tax relief

If you are earning an income, you will get tax relief on your contributions to your pension that you would not get from other forms of savings. However, you will pay tax on your regular income from your pension plan when you retire.

For every €100 of your income that you invest in a pension, the real cost to you after tax relief is less. It costs you:

  • €80 if you pay tax at 20%
  • €60 if you pay tax at the top rate of 40%

Your contributions are not deductible for Universal Social Charge (USC) or Pay Related Social Insurance (PRSI) purposes. The maximum annual earnings that you can take into account for pension tax relief is subject to Revenue limits. If you are a member of an employer pension plan or occupational pension scheme, you don’t have to pay tax on any contributions your employer makes.

The percentage of your income you can get tax relief on for pension purposes depends on your age. It increases as you get older. Tax relief is only paid up to earnings of €115,000.

Your age % of your income you can get tax relief on
Under 30 15%
30 to 39 20%
40 to 49 25%
50 to 54 30%
55 to 59 35%
60 or over 40%
  1. Tax-free investment growth

You don’t have to pay tax on the growth of your pension fund.

  1. Tax-free cash when you retire

When you retire, you can take part of your pension fund as a tax-free lump sum. The amount you can take depends on the type of pension plan you have and how much tax-free lump sums you may have taken from other pension plans. It is important to remember that your regular pension income will be subject to all income taxes when you retire.

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