The Tax Advantages of a Pension Plan in Ireland

Pension contributions are one of the most tax-efficient ways to save in Ireland, because you get income tax relief at your marginal rate — 20% or 40%. The amount you can contribute tax-efficiently depends on your age, and there is an earnings cap of €115,000.

How pension tax relief works

When you contribute to a pension, you get tax relief on the amount you put in. The higher your tax rate, the less the contribution actually costs you:

Age-based contribution limits

The percentage of your earnings you can get tax relief on rises with your age:

Earnings cap and fund limits

Pension tax relief is calculated on earnings up to a cap of €115,000 a year. Separately, the total value you can draw from a pension at standard tax treatment is limited by the Standard Fund Threshold of €2 million — amounts above that are subject to a higher tax charge.

How your pension is taxed on the way out

On retirement you can normally take up to 25% of your fund as a tax-free lump sum (up to a limit of €200,000). The remainder is then taxable, usually by drawing it as income or through an approved retirement fund.

Pensions are often the single biggest tax saving available to business owners and directors. If you want to structure your pension contributions tax-efficiently, talk to Bradán Accountants.

Sources

• Revenue.ie – Pension tax relief and limits
• Pensions Authority – Pension limits