Exploring Pension Schemes in Ireland: Types, Taxation & More

A pension scheme is a savings arrangement that helps secure your financial well-being in retirement. 

Various government and employer-sponsored pension schemes are available in Ireland. You also have personal pensions you can set up for yourself. 

But how do these Irish pension schemes work?

Is your retirement pension taxed? 

How can you get tax relief on your pension contributions?

Keep reading to get answers to all these questions and more.

How Pension Schemes Work in Ireland

Ireland's pension system comprises government-backed state pensions, private-sector occupational and personal pension schemes.

Here’s a quick look at these pension schemes: 

1. Social Welfare Pension Schemes

Ireland’s social welfare pension schemes consist of the State Pension (Contributory) and the State Pension (Non-Contributory). 

Both are weekly payments made by the Department of Social Protection to people aged 66 and above. 

For more information, check out our detailed guides on these schemes: 

• State Pension (Contributory) 

• State Pension (Non-Contributory)  

2. Occupational Pension Scheme

Occupational pension schemes (aka company pension plans) in Ireland are employer-sponsored pension plans that offer regular income to employees in retirement. 

Two popular occupational pension schemes are defined contribution and defined benefit schemes. 

Here’s everything you should know about Ireland’s Occupational Pension Schemes.

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3. Personal Pension Schemes 

A personal pension scheme (aka private pension scheme) is a retirement savings plan individuals set up through an investment or life assurance company. 

These are for self-employed people or workers whose employers don’t offer occupational pension plans. 

The two types of personal pension plans in Ireland are Personal Retirement Savings Accounts (PRSAs) and Retirement Annuity Contracts (RACs). 

Learn more about the Personal Pension Schemes in Ireland. 

But wait:

The Irish government plans to introduce the automatic enrolment retirement savings system in January 2025. This new scheme will:

• Support nearly 750,000 Irish workers without an occupational pension plan who solely rely on the State Pension. 

• Auto-enrol all eligible employees aged between 23-60 years and earning more than €20,000 per year in a workplace pension plan.

• Operate on an ‘opt-out’ basis — giving employees the choice to opt out of the scheme for a limited period.

• Be administered by the Central Processing Authority, which the government will set up to ensure all Irish workers have access to a workplace pension. 

Check out a complete breakdown of the Irish Auto Enrolment Scheme, including its eligibility criteria and contributions. 

How Are Pension Schemes in Ireland Taxed?

Generally, all income you generate from Ireland’s state, occupational and personal pension schemes is taxable. 

1. Tax on Pension Income

You must pay income tax on your annual pension earnings if you're an Irish citizen aged 66 and above. 

Here’s an overview of how your pension income is taxed at retirement:

• The first portion of your income is taxed at a standard tax rate of 20%, as per the standard rate cut-off points, and the remaining balance is taxed at a higher tax rate of 40%.

  • For instance, the standard cut-off rate for a single person is €42,000. 

  • So, if you’re a single individual earning €43,000 per year, the initial €42,000 will be taxed at 20%. The remaining €1000 will be taxed at a higher tax rate of 40%. 

2. Tax on Personal, Occupational, and State Pension

Let’s examine how each pension scheme is taxed in Ireland.

a. Personal Pension

If you joined a PRSA or an RAC, your pension will be taxed under the PAYE (Pay-As-You-Earn) system, which means your pension provider will deduct the tax from your pension income before it’s paid. 

You also have the option to use the money accumulated in your pension pot to purchase an annuity in retirement. 

What’s an annuity?

An annuity is a retirement payment option that guarantees you a regular monthly income in retirement for the rest of your life. 

Income from annuities is also taxable within the PAYE (Pay-As-You-Earn) system and subject to the Universal Social Charge. This means your annuity provider automatically deducts the tax (usually at a higher tax rate of 40%) before you receive your payment.

b. Occupational Pension

Occupational pension schemes are taxed under the PAYE system and are subject to the USC (Universal Social Charge). 

However, they are exempt from PRSI (Pay Related Social Insurance). 

Under the PAYE system, your pension income is taxed every time you receive your salary. This means that your employer deducts the income tax and USC from your paycheck and pays the deducted amount to the Revenue. 

Moreover, in the case of an occupational pension scheme, there is a cap on the maximum pension income you can receive at retirement. This cap typically amounts to about 2/3rd of your final salary — provided you've completed at least 10 years of service.

c. State Pension

You may also have to pay tax on your State Pension. However, the tax isn’t deducted at the source. 

Here’s how your State Pension will be taxed under different scenarios:

A. If You Receive Both State and Occupational Pension Payments 

• If you receive both the State Pension and occupational pension, your occupational pension is taxed through the Pay-As-You-Earn (PAYE) system (similar to how your regular salary is taxed).

• When you pay taxes on your employment income, you receive tax credits. 

• For the taxation of the State Pension, your annual tax credits are reduced by the tax liability on your State Pension. So, while you pay tax on both pensions, it's deducted from your occupational pension.

B. If You Receive Only the State Pension Payment 

• If you solely rely on the State Pension payments at retirement, the Revenue Commissioner may use various methods to tax your pension. This can include decreasing your personal allowance and tax credits. 

• However, it's important to note that you usually don’t have to pay any taxes on your State Pension if you have a low income, and the State Pension is your only source of income at retirement. 

2. Tax on Lump Sum at Retirement

You can only take up to €200,000 from your pension pots as a tax-free lump sum on retirement. 

 If your lump sum amount exceeds the €200,000 limit, it will be taxed on the following basis:

• Between €200,001 to €500,000: Taxed at 20% standard tax rate.

• More than €500,000: Taxed at a 40% marginal tax rate. 

The withdrawal limits may also vary based on your pension arrangement type: 

• If you’re receiving a personal pension, such as an RAC or a PRSA, you can claim 25% (up to €200,000) of the retirement fund as a tax-free lump sum. 

• If you’re in an occupational pension scheme and have completed 20 years of service, you can claim a tax-free lump sum of up to 1.5 times your final salary if it exceeds the 25% limit.

3. Tax on ARFs

An Approved Retirement Fund (ARF) is a post-retirement fund where you can invest the amount accumulated in your pension pot as a lump sum. 

It lets you withdraw money from the fund anytime you want to ensure you have flexible and regular income in retirement. 

Any money taken from an Approved Retirement Fund is regarded as income and subject to PAYE tax rules, which include:

• Income tax.

• PRSI (Pay Related Social Insurance).

• USC (Universal Social Charge).

What’s more?

From age 61, you must make a 4% mandatory annual withdrawal from your ARF, known as Imputed Distribution. This rate increases to 5% once you reach age 71. 

However, if your pension fund exceeds the €2 million threshold when you’re over 61, the starting minimum withdrawal or imputed distribution rate is increased to 6%.

How Can You Get Tax Relief on Pension Scheme Contributions?

Generally, you can claim income tax relief on your pension contributions (including Additional Voluntary Contributions – AVCs) if you have joined an approved pension scheme. 

Approved schemes include:

• Occupational pension schemes.

• Personal Retirement Savings Accounts (PRSAs). 

• Retirement Annuity Contracts (RACs).

• Pan-European Personal Pension Products (PEPPs).

• Qualifying Recognised Overseas Pension Scheme (QROPS).  

However, certain limits exist on the amount you can claim as tax relief. These are:

• Standard Fund Threshold: It’s a lifetime limit on the overall pension fund value for which you can claim tax relief and is set at €2 million as of 2024. 

• Annual Limit: It includes two limits — the Age-related Percentage limit, which gives tax relief based on your age, and the Total Earnings limit, which is imposed on the amount of income taken into consideration while calculating your tax relief. As of 2024, this limit is set at €115,000.

Learn more about Tax Relief on Pension Contributions in Ireland. 

4 FAQs on Pension Schemes in Ireland 

Here are the answers to some commonly asked questions about pension schemes in Ireland.

1. Who Regulates Pension Schemes in Ireland?

The Pensions Authority is a regulatory body that regulates occupational and personal pension schemes (PRSAs and RACs), while the Department of Social Protection (DSP) manages the State Pension in Ireland. 

A separate Pensions Council also works with the Minister for Employment Affairs and Social Protection to advise them on matters related to pension policies. 

2. Who Can You Contact For Issues Related to Irish Pension Schemes?

You can contact the Financial Services and Pensions Ombudsman (FSPO) if you have any issues related to pension schemes in Ireland.

They can investigate and decide on complaints related to occupational pension schemes, Personal Retirement Savings Accounts (PRSAs) and Retirement Annuity Contracts (RACs).

To make a complaint or report an issue, contact the FSPO at:

• Phone: (01) 567 7000.

• Email: [email protected]. 

In case of any issues regarding the State Pension, you can contact the Department of Social Protection at:

• Phone: (071) 915 7100 or 0818 200 400.

• Email: [email protected] or [email protected].

3. What Is a Supplementary Pension?

A supplementary pension in Ireland is an additional pension the Irish government pays to retirees whose occupational pension is reduced and balanced out by the State Pension (Contributory) payments. 

It’s the extra money you get if your full pension (without any adjustments) is more than the total of your current pension and the government benefits you receive.

4. Does Ireland Have a Retirement Age?

While there’s no set retirement age for employed and self-employed individuals in Ireland, most people retire by age 66 — when the State Pension payments begin. 

Some employment contracts also have a mandatory retirement age of 65 and may offer employees early retirement options (from age 60 onwards). 

Learn more about the Retirement Age in Ireland.

5. What’s the Earliest Age You Can Claim Your Pension?

Usually, you can claim your pension fund when you’re over 60 and under 75 years old. 

But, if you suffer from a severe illness or disability and cannot return to employment permanently, you can claim your pension savings at any age. 

Some occupational pension schemes let you take early retirement at the age of 50. However, it’s only possible if the scheme's rules and your employer permit you to retire early.

Early retirement is also possible if you’re in a profession where the usual retirement age is before 50, such as a sportsperson like a football or rugby player. 

Moreover, from January 2024, State Pension (Contributory) recipients can claim their pension between ages 66 and 70 to receive the State Pension at a higher rate.

Join the Irish Pension Schemes & Live Comfortably in Retirement 

Pension schemes offer a structured and efficient way to save for retirement by ensuring financial security and reducing the risk of outliving one's savings. 

Amid the growing cost of living in Ireland, a pension scheme can help you sustain your lifestyle in retirement. 

However, all investments carry some amount of risk. 

So, regularly monitor the performance of your investment funds with the help of your pension provider and consult financial advisers for expert advice.