A Guide to Pension Schemes in Ireland: All You Need to Know

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 the option to set up personal pensions for yourself. 

But how do these Irish pension schemes work?

How is your retirement pension taxed? 

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

Let’s take a quick look at each scheme: 

1. Social Welfare Pension Schemes

Ireland’s social welfare pension schemes include 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. 

Find out 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. 

In Ireland, there are two types of personal pension plans: Personal Retirement Savings Accounts (PRSAs) and Retirement Annuity Contracts (RACs). 

Learn more about the Personal Pension Schemes in Ireland. 

What’s more?

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

• Support nearly 800,000 Irish workers without an occupational pension plan who solely rely on the State Pension. 

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

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

• Be administered by the National Automatic Enrolment Retirement Savings Authority — a new public body the government will set up to ensure all Irish workers have access to workplace pensions.

Check out our detailed breakdown of the Irish Auto Enrolment Scheme, including its eligibility and employee/employer 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 Occupational, State, and Personal Pension

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

a. 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.

b. 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, the Department of Social Protection (DSP) reduces your annual tax credits by the tax liability on your State Pension. So, while you pay tax on both pensions, it's deducted from your occupational pensions.

B. If You Receive Only the State Pension Payment 

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

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

c. Personal Pension

If you joined a PRSA or an RAC, your pension is 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.

3. 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.

4. Tax on ARFs

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

It lets you withdraw money from the fund anytime, ensuring a 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).

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

The approved schemes are:

• 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: This is 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: This 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 considered while calculating your tax relief. As of 2024, the Revenue has set this limit at €115,000.

Learn more about Tax Relief on Pension Contributions in Ireland. 

8 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 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 Social Protection to advise them on matters related to pension policies. 

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

If you have any issues related to pension schemes in Ireland, contact the Financial Services and Pensions Ombudsman (FSPO) in Dublin.

They can investigate and decide on complaints about 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]. 

• Website: http://www.fspo.ie/

For any issues regarding the State Pension, 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?

In Ireland, a supplementary pension is an additional pension paid to retirees whose occupational pension is reduced and balanced by the State Pension (Contributory) payments. 

It’s the extra income 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. Will the Irish Auto-Enrolment Scheme Replace the State Pension?

The Irish Auto-Enrolment Scheme won’t replace the State Pension. 

The auto-enrolment pension scheme aims to increase retirement savings by providing additional income for employees without a private pension.

While the State Pension will remain the primary source of income for retirees, the auto-enrolment system will offer a new way for workers to save for their future, supplementing the State Pension rather than replacing it.

5. 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.

Due to Ireland's rising life expectancy rates (82% in 2024, as per a Macrotrends report), the Irish government increased the State Pension age from 65 to 66 in 2014. While there were plans to increase this age to 67 in 2021 and 68 by 2028, the government has made no such changes in legislation as of May 2024

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

Here’s when you can start claiming different types of pensions:

• Occupational Pension: Some occupational pension schemes let you take early retirement at the age of 50. However, this is only possible if the scheme's rules and your employer permit it. 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. 

• State Pension: You can start receiving your State Pension when you reach the age of 66. Moreover, the changes made to the State Pension in January 2024 allow Irish workers to start claiming their State Pension (Contributory) anytime between the ages of 66 and 70 in exchange for higher pension entitlements.

• Personal Pension: Usually, you can start claiming your pension at any age between 60 and 75. 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. 

7. Can Separation or Divorce Affect Your Pension in Ireland?

Separation or divorce can affect your pension in Ireland. 

When a marriage, civil partnership, or cohabitation ends through judicial separation, divorce, or dissolution, the court may issue a pension adjustment order. 

This order allows the court to divide your valuable assets, such as the family home and pensions, to ensure a fair distribution of financial resources.

Here’s what the court can ask you to do:

• Divide the pension between you and your former spouse, civil partner, or dependents under 18.

• Transfer or pay part of the pension to the other spouse (if one spouse has a large pension pot and the other doesn’t).

Moreover, if you have multiple pension arrangements, the court can issue separate pension adjustment orders for each one to ensure fair distribution among all parties. 

8. What Happens to Your Pension Fund If You Switch Jobs or Become Self-Employed?

If you're leaving your job or becoming self-employed, you have three main options to manage your pension benefits, depending on your circumstances:

• Leave your benefits in your existing pension plan.

• Transfer your benefits to your new pension plan.

• Take a refund of contributions (subject to certain restrictions).

Boost Your Retirement Income with Irish Pension Schemes

Pension schemes offer a structured and efficient way to save for retirement. They ensure financial security and reduce the risk of outliving one's savings. 

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

However, all investments carry some amount of risk. 

Regularly monitor the performance of your investment funds with the help of your pension providers and consult financial advisers for expert advice.