Cathedral Financial Consultants Limited, advising clients since 2003.
Personal Pension in Ireland
A Personal Pension Plan (PPP) in Ireland is a retirement savings tool that enables you to contribute either regularly or as a single lump sum. These contributions are then invested in assets such as the stock market, with the aim of growing your pension fund to provide income during your retirement years.
What’s in this guide?
What is a personal pension?
How do personal pensions work?
Is a personal pension right for you?
Personal pension tax relief
Taking money from your pension
Useful Links / Documents
Common Questions about Personal Pensions in Ireland (FAQ)
What is a personal pension?
A personal pension is a retirement fund registered in your name and fully owned by you. Unlike a corporate or workplace pension, where your employer may also contribute, contributions to a personal pension are made solely by you.
How do personal pensions work?
Personal Pension Plans, or PPPs, are retirement savings options typically offered by insurance companies and accessible through platforms like MyPension. With many PPP options to choose from, it can be overwhelming to find the one best suited to your retirement goals. Our Advisors are here to help guide you in selecting the most beneficial plan for your future.
When you contribute to a PPP, the insurance provider invests your funds in one or more carefully selected investment vehicles aimed at achieving long-term growth. Common assets include company shares, government bonds, and real estate, all chosen to maximise returns over the life of your plan.
It’s important to understand that insurance companies will deduct various charges from your contributions. These may include setup fees, allocation rates, bid/offer charges, fund management fees, fund switching fees, and more. While these charges can affect your overall fund value, they are transparently outlined in the key features document. Your Financial Advisor can help you calculate these costs, ensuring you have a clear understanding of your potential returns based on projected annual yields.
With the right PPP, you’ll be well-prepared to meet your retirement goals. Let’s build a plan for a secure future together!
Is a personal pension right for you?
PPPs (Personal Pension Plans) are Ideal for:
- Individuals who are self-employed
- Employees without access to an occupational pension scheme
- Those with a taxable income for the relevant tax year
A PPP can be an excellent way to build a retirement fund if you meet these criteria!
Personal pension tax relief
In Ireland, the maximum income tax relief on pension contributions depends on age range and your marginal income tax rate: 40% for higher-rate taxpayers and 20% for standard-rate taxpayers.
Here’s how it works:
- If you invest €100 in a regular savings plan, it costs you the full €100.
- But if you invest €100 in a pension plan, the cost to you can drop to €80 if you’re a standard-rate taxpayer or to just €60 if you’re a top-rate taxpayer.
This tax relief can make a significant difference, helping you maximize your pension savings at a reduced personal cost!
In Ireland, there are limits on income tax relief for pension contributions, meaning you can only contribute up to a certain amount each year while still receiving tax relief. This cap is based on your age and is calculated as a percentage of your gross taxable income, with a maximum gross income limit of €115,000 for tax relief purposes.
Keep in mind, though, that any income you receive from your pension in retirement will be subject to tax.
Understanding these limits can help you plan your pension contributions more effectively and make the most of available tax relief!
Taking money from your pension
Accessing Your Personal Pension Plan (PPP) Upon Retirement
When you retire, the value of your Personal Pension Plan (PPP) will depend on its performance. If your PPP has performed well, you’ll have accumulated a lump sum in your fund. This sum includes your monthly contributions and any investment growth, minus applicable charges. However, if the investments within your PPP do not grow as anticipated, you could end up with less than the total amount you contributed.
When Can You Access Your PPP Funds?
-
Between Ages 60 and 75:
You can begin withdrawing funds from your PPP anytime between the ages of 60 and 75. It’s not necessary to retire or stop working to access your benefits—you simply need to be within this age range. -
In Cases of Serious Ill Health:
If you are permanently unable to work due to serious illness, you may access your pension at any age, subject to Revenue approval. This option is available only in exceptional circumstances. -
At Age 50 for Certain Occupations:
Individuals in professions with earlier retirement norms, such as professional athletes (e.g., golfers, rugby players, or jockeys), may access their pension benefits starting at age 50.
When accessing benefits from your PPP fund, you will generally have the option to withdraw up to 25% of the fund as a tax-free lump sum, subject to a lifetime limit of €200,000. For the remaining balance, you have several options to consider:
Approved Retirement Fund (ARF):
You can invest the remaining balance in an Approved Retirement Fund (ARF), which allows your fund to potentially grow tax-free. This option also enables you to access your pension as needed.
Annuity:
Alternatively, you may choose to purchase an annuity, which provides a guaranteed regular income for life or a specified period, depending on the terms of the annuity.
Taxable Lump Sum:
You also have the option to withdraw the remaining balance as a lump sum. However, this amount will be subject to taxation in accordance with applicable laws and regulations.
Useful Links / Documents
Start a Personal Pension
Sign-up and start a personal pension, today.
Common Questions about Personal Pensions in Ireland (FAQ)
How much can I put into my personal pension?
While there are no restrictions on the amount you can contribute to your personal pension, there are limits on the income tax relief you can claim for pension contributions. This means there’s a cap on the annual amount eligible for tax relief. The cap is based on your age and is expressed as a percentage of your gross income, with a maximum gross income limit of €115,000 applied for tax relief purposes.
|
Age |
Percentage of earnings you can contribute |
|
Under age 30 |
15% |
|
30 to 39 |
20% |
|
40 to 49 |
25% |
|
50 to 54 |
30% |
|
55 to 59 |
35% |
|
60 and above |
40% |
Can an employer pay into a personal pension plan
In short, no. A personal pension is a retirement fund that is individually owned and registered in your name. Unlike workplace or corporate pension schemes where employers may contribute, only you can make contributions to a personal pension.
However, employers can contribute to a PRSA (Personal Retirement Savings Account), which is another type of retirement plan available to individuals.
What's the difference between a PRSA and a Personal Pension Plan
A Personal Retirement Savings Account (PRSA) is a flexible investment account designed for retirement savings, similar to a Personal Pension Plan (PPP). Contributions to a PRSA are tax-deductible within certain limits. Unlike a PPP, opening a PRSA doesn’t necessarily require you to have earned income or paid taxes.
By law, employers must provide access to at least one Standard PRSA if they do not offer an occupational pension scheme or if specific restrictions apply to their existing scheme. Contributions to your PRSA can be made by you, your employer, or both jointly.
There are two types of PRSAs available: Standard PRSAs and Non-Standard PRSAs. The key differences between them include:
Standard (PRSA) |
Non-standard (PRSA) |
| Capped charges | Charges not capped |
| Limited choices of investment funds | Wide range of investment funds |
Can I take my money out if I need it?
The earliest age you can access your pension in Ireland is 50, subject to specific conditions. To qualify for early withdrawal, you must have a pension with a former employer, an executive pension, or a PRSA, and meet certain criteria. (For more information on eligibility conditions, please consult a financial advisor.)
Determining the type of pension you hold and understanding the pros and cons of transferring it is vital. We strongly recommend consulting one of our Financial Advisors to explore your pension drawdown options and assess eligibility.
Tax-Free Lump Sum Option
When accessing your pension, you can withdraw up to 25% of your fund as a tax-free lump sum, subject to a lifetime limit of €200,000. For example:
- If your pension is valued at €800,000, you can withdraw €200,000 tax-free.
Understanding Your Pension’s Value
It’s important to understand the type of pension you have when assessing its value. Defined Benefit (DB) pensions, for instance, often appear smaller than their actual worth on annual statements. For example:
- A DB pension showing €30,000 per annum on your statement could represent total pension savings exceeding €450,000.
Making an informed decision about early pension access requires a clear understanding of your pension type and its value. Contact us today to learn more and take the next step.
What happens to a persons pension when they die?
If you die before accessing the benefits from your PPP fund, the value of the fund can be paid into your estate. In order to streamline this process, it’s essential you have an up-to-date, valid Will.
Take control of your retirement, with MyPension – Powered by CFC
View all your pensions in one place. MyPension allows you to easily manage your pensions, with features such as combining, contributing and making withdrawals. Your pension, in the palm of your hands.
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