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A pension plan is basically a long term investment plan, where you save regular amounts or lump sums (called 'contributions') to build up a retirement fund. If you are earning an income, you will get tax relief on your contributions to your pension plan that you would not get from other forms of savings. However, you will pay tax on your income from your pension in retirement.
For every €100 of your income that you invest in a pension plan, 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%*
*Tax rates are valid as at 30th July 2020 and may be subject to change
If you are an employee, the real cost will be even lower as you can also get some relief on the income levy, PRSI (pay-related social
insurance) and health levy payments. If you are a member of an employer pension plan, you don't have to pay tax on any contributions your employer makes.
The maximum in earnings that you can take into account for pension tax relief is subject to Revenue limits.
The percentage of your income you can get tax relief on for pension purposes depends on your age. It increases as you get older.
|Your Age||% of your income you can get tax relief on|
|30 to 39||20%|
|40 to 49||25%|
|50 to 54||30%|
|55 to 59||35%|
|60 or over||40%|
Tax-free investment growth
You don't have to pay tax on the growth of your pension fund.
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. It is important to remember that your regular pension income will be subject to income tax.
Panning for your retirement
Planning for your retirement by putting in place a pension might seem like a complicated task, but the earlier you get started the better, as you will have more time to make contributions and more time for your pension fund to grow in value.