What Is an Occupational Pension in Ireland? How Does It Work?

Occupational pension schemes are employer-sponsored pension plans that help employees secure their financial future after leaving the workforce.

Let’s explore the occupational pension meaning in more detail. 

We’ll cover its types, how it works in Ireland, and why it’s valuable for employees and employers. 

What Is an Occupational Pension Scheme in Ireland?

An occupational pension scheme, or company pension plan, is an employer-provided retirement savings plan that offers employees regular income during retirement.

These pension schemes are regulated by Ireland’s Pensions Authority, previously known as the Irish Pension Board.

Some Irish occupational pension schemes allow employers to contribute to employees' pension pot on their behalf, while others require contributions from both employees and employers.

Schemes are designed to give employees a retirement income; however, most schemes allow employees to draw down a part of their pension savings as a tax-free lump sum (subject to scheme/Revenue rules and limits). 

We’ll discuss these types of occupational pension schemes soon.

But first… 

Shouldn’t All Employers Provide Occupational Pensions?

Irish employers aren’t legally required to offer an occupational pension scheme. 

However, many employers offer one as part of their benefits package for the following reasons:

• Attract and retain skilled talent: Offering occupational pensions gives employers a competitive edge as employees often prioritize companies that invest in their long-term financial security. Investing in their future also encourages loyalty, reducing turnover and associated costs.

• Tax benefits: Employer contributions to the employee’s pension plan can be offset against corporation tax, reducing the employer's overall tax burden by 12.5%.

• Boost employee morale: Providing pension benefits signals that the company values its employees and their well-being. This boosts morale, increases job satisfaction, and can result in higher productivity.

Employers who don't provide an occupational pension scheme must provide employees with access to at least one standard Personal Retirement Savings Account (PRSA) — which we’ll discuss in this guide’s FAQ section. 

What’s more?

The Irish government plans to introduce the auto-enrolment pension scheme (a new retirement savings system) in 2025.

Under the new auto-enrolment scheme, all eligible employees will be automatically enrolled in the pension plan. Additionally, both the employer and employees will be legally required to contribute a fixed percentage of their earnings to the employee’s auto-enrolment pension pot.

Want to learn more about automatic enrolment? 

Download our detailed Irish Auto Enrolment Guide.

What Are the Different Types of Occupational Pension Schemes Available in Ireland?

Occupational pension schemes fall into three categories:

• Defined Contribution and Defined Benefit Pensions 

• Funded and Unfunded Pensions 

• Hybrid Pensions 

Here’s a quick overview of the different types of occupational pension schemes: 

1. Defined Contribution and Defined Benefit  Occupational Pensions 

a. Defined Contribution Pension Scheme 

• A defined contribution (DC) pension scheme is the most popular type of occupational pension in Ireland. As of 2023, 66% of employees with occupational pensions from their current employment were enrolled in their employer’s DC pension plan.

• In a defined contribution scheme, employees and their employers contribute a percentage of their monthly earnings to the pension fund. 

• While DC schemes don’t guarantee the level of benefits employees will receive at retirement, they clearly define how much the employer will contribute to the pension fund. 

• Typically, some schemes require employees and employers to make matching contributions, such as 5% of their monthly earnings, to the pension fund. 

• However, employee contributions aren’t always necessary. In some cases, the employer contributes to the employee’s pension pot without the employee's participation.

Want to offer your employees a flexible defined contribution pension scheme? 

Join Kota to enrol your team within minutes!

b. Defined Benefit Pension Scheme 

• In a defined benefit (DB) pension scheme, an employee’s pension benefits are defined from the beginning and depend on the length of their service and their salary when they retire.

• Irish employees can contribute a pre-approved amount to their DB scheme. 

• However, the employer must contribute the remaining amount if there’s an insufficient amount or shortfall in the pension pot when the employee retires. 

2. Funded and Unfunded Occupational Pensions

a. Funded Pensions

• Employers and employees contribute a fixed percentage of their monthly income towards a company pension plan in a funded pension scheme.

• The scheme's trustees add these contributions to a trust fund established outside the company to cover the payment of retirement benefits. This ensures the assets are available to pay members' pensions if the employer goes out of business.

b. Unfunded Pensions

• Employees don’t make pension contributions in an unfunded pension scheme. Instead, employers pay out the benefits their employees are entitled to whenever they are due alongside their regular salary. 

• This type of arrangement is called 'pay as you go', in which employees don’t pay contributions in unfunded plans, and employers don’t have to set up a trust. 

• These schemes are typically available to civil servants, teachers, Gardaí, and other government employees.

3. Hybrid Occupational Pensions

A hybrid occupational pension scheme combines elements of defined contribution and defined benefit schemes. 

In a hybrid scheme, the employer and the employees are responsible for meeting contribution requirements to sustain employees in retirement. 

There are many types of hybrid benefit schemes:

• Underpin scheme: Members can receive benefits based on a DB or a DC scheme. When employees retire, they will receive the higher benefit out of the two.

  • For example, an underpin scheme might have the employer and employee contributing 6% each to a plan with a guaranteed minimum pension of 1% per year for the length of their service at retirement.

• Self-annuitising defined contribution schemes: These schemes operate similarly to a DC scheme until the employee retires. Post-retirement, the accumulated amount is converted into pension income based on the scheme’s rules instead of the market (annuity) rates. 

• Final salary lump sum schemes: Employees can collect the retirement benefit as a lump sum at retirement rather than regular pension payments. As per Revenue rules, the level of lump sum benefits provided is calculated based on the employee’s length of service and final salary with the relevant employer. 

But who is eligible to join these schemes?

Keep reading.

Occupational Pension Scheme Membership in Ireland

Let’s understand who can and cannot become an occupational pension scheme member in Ireland. 

Who Can Join Occupational Pension Schemes?

In Ireland, anyone working for a company that offers an occupational pension scheme can join the employer’s plan, provided they meet the company’s requirements, such as being a paid employee. 

This may include full-time and part-time workers and sometimes even former employees who still have rights in the scheme.

Additionally, an employee who is temporarily absent or seconded to another employer but remains an Irish resident can continue to be a full member. However, this is only possible if: 

• There is a guarantee that the employee will return to service and

• The employee doesn’t become a member of another approved retirement benefits scheme.

Employees can only stay in the pension scheme while temporarily away from work for up to five years. If the absence lasts longer than five years, it must be reported to Revenue.

Who Cannot Join Occupational Pension Schemes?

• 20% directors of investment companies.

  • However, certain exemptions may exist for directors whose investment companies act as holding companies for a group of trading companies. 

  • If the holding company serves as the group's coordinator, the amount of directors' remuneration allowed as a tax deduction of the company is pensionable.

• Agents, consultants, proprietors, single traders, and others assessed to income tax on their earnings under Schedule D rather than Schedule E aren't eligible for benefits under an approved plan. 

  • Schedule D is the heading in the tax code where business income is taxed.

  • Schedule E is the heading where employment income is taxed — this can include salaries, pensions, and wages.

Let’s understand how occupational pension schemes work next.

How Do Irish Occupational Pension Schemes Operate?

Employers set up company pension plans for their employees under trusts, and the trustees monitor the members’ assets on their behalf. 

There are three types of members in an occupational scheme: 

• Active members: Employees currently employed in an organization and making regular contributions.

• Deferred members: Employees who have left their jobs and stopped contributing to the pension but are entitled to receive their pension benefits in the future.

• Pensioners: Pensioners are plan members past their retirement age and receiving pension payments.

Sometimes, trustees may take help from an insurance company or a pension service provider to handle operations while acting as a watchdog to ensure members and employers comply with the scheme’s rules and regulations. 

The scheme's trustees must also protect members' pension rights while managing the scheme.

We’ll explore the options available for scheme members to claim their retirement benefits.

How to Claim Irish Occupational Pension at Retirement?

An employee’s pension options at retirement include:

• Taking a Tax-Free Lump Sum: Employees can collect a tax-free lump sum payment from their pension funds when they retire. The amount depends on their pension scheme and whether they received any tax-free lump sums from other pension plans.

• Receiving a Pension Through Annuity: A retirement annuity is a regular pension income purchased with all or a portion of the retirement fund. In exchange for transferring the retirement funds to a life assurance firm, the company will pay employees a guaranteed monthly income for the rest of their lives. 

• Transferring the Retirement Savings to an ARF: An Approved Retirement Fund (ARF) is a personal retirement fund where employees can invest their pension fund after getting it as a lump sum payment. They can withdraw money from it regularly.

• Providing for Dependents: Some plans pay pension benefits to dependents when pension scheme members die while working. Others provide benefits to employees' dependents if the employee dies post-retirement. They receive payment in lump sums or as a regular pension income.

Curious if the pension payout will be taxed?

Let’s take a look.

Are Occupational Pension Schemes Taxable in Ireland?

In Ireland, occupational pension schemes are subject to Pay Related Social Insurance (PRSI) and Universal Social Charge (USC). 

However, they’re exempt from the Pay As You Earn (PAYE) system.

Once the employee has retired, their pension provider (typically the employer or pension scheme trustees) is responsible for deducting income tax and USC before making payments to the retiree.  

Ready to set up compliant occupational pension schemes for your team?

Manage Irish Occupational Pension Schemes Effortlessly with Kota

Most Irish employers offer occupational pension schemes to their employees to support them in retirement and supplement their State Pension. 

If you want to offer your team an occupational pension scheme, use Kota.

Kota is a modern employee benefits platform that helps you enrol your employees, automate, and scale your retirement benefits effortlessly.

It lets you:

• Offer flexible and portable occupational pension schemes in Ireland.

• Know how your retirement plan competes locally with geo-based data.

• Automate pension benefit rollout without extensive paperwork.

• Connect with your existing human resources & payroll tools to reduce admin costs. 

We offer a defined contribution pension plan via pension providers like Irish Life (the Irish Life EMPOWER Personal Lifestyle Strategy). This scheme allows employees to manage risks and allocate their investments to suitable funds that align with their needs.

How Does Kota Work?

You can onboard employees to Kota and set up their retirement benefits in four easy steps: 

• Step 1: Create your account and add employees.

• Step 2: Select the matching contribution you want to add to your employee pension. For example, a 5% matching contribution is where the employer and employee contribute 5% of their pensionable salary to the pension fund. 

• Step 3: Enrol your employees in the pension plan. 

• Step 4: Add payment and billing details.

Join Kota today and enrol your employees in a corporate Master Trust that gives your team complete control over their contributions — all in one delightfully simple app.   

7 FAQs on Occupational Pension Schemes in Ireland

Here are some commonly asked questions on occupational pension schemes:

1. What Can Employees Do if Their Employer Doesn’t Offer Occupational Pension Schemes?

Employees can join a private pension plan (aka personal pension schemes) if their employer doesn’t offer an occupational pension scheme. 

The main types of personal pension plans offered in Ireland are:

• Personal Retirement Savings Account (PRSA): Employees under 75 can open a PRSA. They deposit a portion of their salary into their PRSA account, which is invested in shares and stocks to guarantee that inflation doesn’t decrease the fund's value. 

• Retirement Annuity Contract (RAC): Only people with “relevant earnings” can join an RAC. Net relevant earnings are incomes obtained from trade, self-employment, or non-pensionable employment. The amount in the RAC pension funds is invested in shares or stocks, and its value may rise or fall based on their investment performance.

2. Is There a Cap on Tax Relief Available for Occupational Pension Schemes?

There is a cap on the total value of the pension fund for which an employee can receive tax relief, known as the Standard Fund Threshold, which is €2 million as of 2024. 

The government plans to increase the SFT to €2.8 million over four years, from 2026 until 2029.

If the fund exceeds this limit, a 40% tax will be levied on the excess when it’s withdrawn from the fund. 

An annual pension limit is also set on the amount of pension contributions employees claim as tax relief in a year based on the maximum percentage of their income and age. The maximum gross income considered to calculate this percentage is €115,000.

3. Can Employees Preserve or Transfer Their Pension Benefits?

If scheme members leave employment, change jobs, or become self-employed, they have three options:

• Preserve the benefits within the existing scheme: If an employee has been a pension scheme member for two or more years, they can leave their benefit amount in the scheme until they retire (a preserved benefit).

• Transfer benefits to a new pension scheme: Employees can move their pension benefits to other arrangements. For instance, employees can move their retirement annuity contract (RAC) benefits to another RAC or a personal retirement savings account (PRSA). 

• Get a refund of their contributions: If employees are pension scheme members but have less than two years of qualifying service, they can obtain a refund based on the value of their contributions. However, this is subject to tax.

4. What Happens to an Employee’s Occupational Pension if They Move Abroad?

If an employee leaves their employer and moves abroad after contributing to their company pension plan, they have two options:

• Leave their retirement savings in Ireland: Employees can keep their savings in their employer’s pension scheme (with trustee approval) or transfer them to a PRSA if they have fewer than 15 years of membership. If they retire outside of Ireland, they can access their savings from age 50, with consent from their employer and trustees.

• Transfer their savings overseas: Employees can transfer their pension savings to a pension scheme in the country they’re relocating to. However, there may be restrictions or conditions the employee must meet, depending on the regulations of that country.

5. What Are the Employers’ Pension Obligations if an Employee Is Terminated?

When an employee is terminated, employers must provide specific information about the pension plan to their employees, as per the rules set by the Pensions Authority (formerly known as the Irish Pension Board).

For example, in a defined contribution scheme, the employer must inform the employee about:

• The total value of employer contributions paid on behalf of the employee.

• The rights and claim options available to them when leaving service.

• The procedure for claiming pension benefits.

On the other hand, in a defined benefit pension scheme, the employer must inform the employee about:

• When their benefits will be paid.

• The amount of preserved benefit the employee is entitled to upon retirement. 

• Any other extra benefits to be paid to the employee under the pension scheme rules.

6. How Can Employees Boost Their Occupational Pension Benefits in Ireland?

To boost their pension benefit, employees can:

• Make Additional Voluntary Contributions (AVC): Employees can increase their pension benefits by making AVCs in addition to their regular contributions to an occupational pension scheme. The extra amount they contribute is flexible (within Revenue limits) and qualifies for tax relief.

• Take out a PRSA: If a company pension scheme doesn’t allow AVCs, the employer must offer a standard PRSA as an alternative to which employees can contribute. Employees can also set up their own PRSA and contribute to it independently of their employer’s scheme.

• Join the Purchase of Notional Service (PNS) Scheme: This scheme is only for public sector employees. It allows workers with less than 40 years of service to "buy back" additional service years by making extra contributions, either as lump sums or through regular payments. The cost depends on the employee's age, and these contributions usually qualify for tax relief, as per Revenue limits.

7. Can Irish Workers Receive Both the State Pension and an Occupational Pension?

In Ireland, employees can receive the State Pension (Contributory) and an occupational pension. 

However, many defined benefit pension schemes consider the State Pension payments when calculating the total benefits. 

For example, some defined benefit schemes combine the State Pension with the occupational pension to provide a total benefit equal to half or two-thirds of the employee’s final salary. These schemes are called integrated or coordinated schemes.

Empower Your Employees with Occupational Pensions in Ireland

Occupational pensions in Ireland are a win-win for employees and businesses.  

Employees get peace of mind for their retirement, while employers enjoy tax perks and build a team that sticks around. It’s more than just a benefit — it's a smart, long-term investment in your workforce and business. 

If you're looking for an easy way to offer occupational schemes to your team, explore how Kota can simplify the process for your business.