Tax Relief on Pension Contributions Ireland: 2025 Guide

Your employees in Ireland can claim tax relief on their pension contributions within certain limits to reduce their overall tax liability.

What are the limits?

How can your employees claim their tax relief?

And do you, as an employer, qualify for tax relief on contributions?

We’ll break it all down in this guide on how tax relief on pension contributions works in Ireland.

Who Is Eligible for Tax Relief on Pension Contributions in Ireland?

Your employees must fulfil the following eligibility criteria to qualify for tax relief in Ireland:

• They must be contributing to an approved pension scheme (Revenue-approved pension schemes that qualify for income tax relief), such as:

  • Occupational pensions (including Additional Voluntary Contributions)

  • Personal Retirement Savings Accounts (PRSA) 

  • Retirement Annuity Contracts (RACs)  

  • Qualifying overseas pension plans

• Their income or earnings must be taxable under Schedule E or Schedule D (Case I or II).

Can employers get tax relief on contributions to an employee’s pension fund?

In Ireland, employer contributions to pension schemes are tax-deductible against corporation tax and aren’t considered a taxable Benefit-in-Kind (BIK) for employees. 

We’ll discuss this in detail in the "Do Employers Get Tax Relief on Pension Contributions?" section. 

First, let’s understand how tax relief works.

How Does Pension Tax Relief Work in Ireland?

When your employees contribute to a pension fund either independently or through you (employer), the contribution is deducted from their income before taxes are applied. 

Both you and your employees can get tax relief on these contributions. 

Tax relief is automatically applied to pensions paid via salary deduction. This can include occupational pensions, AVCs, PRSAs, etc. 

However, for private pension contributions made independently (outside salary deductions), your employees must inform the Revenue to have tax relief applied. 

What Is the Tax Relief on Employee Pension Contributions?

The relief is based on your employee’s income and is applied at either the standard tax rate of 20% or the higher rate of 40% for both occupational and private pension schemes. 

The rate applied depends on the highest rate of income tax your employees pay, also known as the marginal rate.

Example:

Suppose your employees pay tax at a 40% rate and make a lump sum pension contribution of €15,000 in the current tax year. In this case, they’ll get a tax rebate of €6000.

But remember:

Your employees’ pension contributions don't qualify for relief from Pay Related Social Insurance (PRSI) or Universal Social Charge (USC). 

Moreover, there are limits on how much tax relief they can claim. 

What Are the Limits for Tax Relief on Employee Pension Contributions in Ireland?

The amount of tax relief your employees can claim depends on the following limits:

• Standard Fund Threshold: The total size of their pension fund that qualifies for relief.

• Age-related Percentage Limit: The maximum contributions they can make, depending on their age.

• Total Earnings Limit: The amount of income that qualifies for tax relief each year.

• Tax-Relief Limit on Lump Sum Payments: The maximum tax-free lump sum your employees can withdraw from their pension.

Here is a closer look at each limit:

Disclaimer: This information is for general purposes only and should NOT be considered investment advice. Consult a qualified financial services advisor or pension provider for personalised guidance before making investment decisions.

A. Standard Fund Threshold (SFT)

Ireland’s Taxes Consolidation Act 1997 limits the total value of the tax-relieved pension savings individuals can draw in their lifetime.

Known as the Standard Fund Threshold, this limit is set at €2 million in 2025. 

In other words, your employees can only claim income tax relief for a pension pot of up to €2 million.

The limit applies to pension benefits built through any of the following tax-relieved pension products:

• Defined benefit occupational pension schemes

• Defined contribution occupational pension schemes

• Retirement annuity contracts (RACs)

• Personal retirement savings accounts (PRSAs)

• Additional voluntary contributions (AVCs)

What Happens When Your Employees’ Pension Fund Exceeds the SFT?

If your employees’ pension fund capital exceeds the SFT (€2 million in 2025), they’ll be taxed 40% (chargeable excess tax) on any amount they withdraw beyond this limit.

They could stop contributing to their pension fund once it reaches the SFT to avoid paying this excess charge.

In September 2024, the Irish government announced plans to gradually increase the Standard Fund Threshold (SFT) limit from €2 million to €2.8 million between 2026 and 2029.

B. Annual Limits

The amount of pension contributions your employees can get relief on in a year is subject to two annual limits:

• Age-related percentage limit: A maximum percentage of their gross income, depending on their age.

• Total earnings limit: A limit to the total earnings (gross income) that’s taken into account to calculate their tax-relieved contributions.

These limits also apply to self-employed people.

If you’re self-employed, earnings refer to your net annual earnings (earnings minus allowable expenses).

We’ll learn about these two limits in detail:

1. The Age-related Percentage Limit

Here’s the maximum percentage of your employees’ annual earnings eligible for tax relief on pension contributions based on their age:

• Under 30 - 15%

• 30 to 39 - 20%

• 40 to 49 - 25%

• 50 to 54 - 30%

• 55 to 59 - 35%

• 60 and over - 40%

Example:

Consider your employee is 52 years old and earns €100,000 in 2025. They can contribute up to 30% of their earnings (i.e. €30,000) to their pension and still qualify for income tax relief. ​​

In other words, the first €30,000 of your employee’s contributions won’t be taxed, lowering their taxable income.

Note: Professionals under 50 who usually retire earlier than the norm, like athletes, are eligible for a higher tax relief limit (30% of net earnings).

2. The Total Earnings Limit

The ‘earnings limit’ is the maximum amount your employees can earn in a year and still be eligible for tax relief on their pension contributions.

As of 2025, the annual earnings limit for tax-relieved pension contributions is €115,000. It’s the maximum limit — your employees can contribute less if they want.

There’s no indication from the Irish government that this limit will increase in 2025 or later. This limit applies whether your employees are contributing to a single pension product or multiple schemes.

How Are Maximum Tax-Relieved Contributions Calculated?

If your employees are contributing to a single pension product, their maximum tax-relieved contributions would be their relevant age-based percentage of the lower of:

• Their yearly gross income (for employees) or net relevant earnings (for self-employed) and

• The total earning limit of €115,000.

Example:

Suppose your employee is 53, earning €300,000 in 2025 and contributing 20% (€60,000) to an occupational pension scheme.

(Remember, they can contribute up to 30% for their age bracket).

Their tax-relieved pension contributions would be limited to €34,500, i.e., 30% of the earning limit of €115,000.

What if your employee has multiple pension products?

In that case, the tax relief only applies to the source of income used to make pension contributions. If your employee has more than one income source, tax relief is only applied to the income from which contributions are made.

C. Tax Relief Limit on Lump Sum Payments

Irish tax laws allow your employees to take a part of their pension as a tax-free lump sum, subject to certain Revenue limits.

Your employees aged 50 or above can typically withdraw 25% of their pension as a tax-free lump sum (TFLS) subject to a lifetime limit of €200,000 in 2025. Any ‘excess lump sum’ amount above this 25% limit is taxable.

This applies to all pension schemes that transfer to an Approved Retirement Fund, including PRSA and occupational pension schemes.

Lump sum payments in Ireland are taxed as follows:

• Lump sum amount of up to €200,000 is subject to 0%

• Lump sum amount from €200,001 – €500,000 is taxed at 20%

• Lump sum amount of over €500,000 is taxed at their marginal rate

What if your employees are a member of an occupational pension scheme?

Occupational pension scheme members with 20 or more years of service may be eligible to claim a tax-free lump sum of up to 1.5 times their final salary if the amount exceeds the 25% limit above.

How Can Employed & Self-Employed Workers Claim Tax Relief on Irish Pension Contributions?

Claiming tax relief on pension contributions depends on an individual’s employment status.

Your employees can make a claim either through your payroll system or by using Revenue’s online service at www.ros.ie.

Let’s understand this in more detail.

1. PAYE (Pay-As-You-Earn) Employees

For PAYE employees, pension contributions are typically deducted through payroll, with tax relief applied automatically at their marginal rate. 

This means:

• You, as an employer, deduct pension contributions from your employees' salaries.

• The due tax relief is applied immediately, requiring no further action from the employee.

What if you don’t deduct pension contributions?

Your employees can manually claim tax relief by using the myAccount service on Revenue’s website (www.revenue.ie) when filing their income tax returns.

2. Self-Employed Individuals

For self-employed workers, pension contributions must be claimed through the self-assessment system. They can:

• File their annual tax return via the Revenue Online Service (ROS) (www.ros.ie).

• Include pension contributions in their tax return (or complete Form 11) to apply for tax relief.

Do Employers Get Tax Relief on Pension Contributions?

Employer pension contributions are payments you (employer) make into your employee’s pension scheme. These contributions are tax-deductible against corporation tax, helping you reduce your tax liability. 

Typically, when you provide a non-cash benefit to your employee, it’s treated as a Benefit-in-Kind (BiK) and is subject to tax. 

However, employer pension contributions are an exception.

Your contributions to the following pension schemes on behalf of your employees aren’t treated as a BiK:

• Occupational Pension Scheme (OPS)

• Personal Retirement Savings Account (PRSA) 

• Pan-European Personal Pension Product (PEPP)

The advantage?

Since employer contributions to pension schemes aren’t considered a BiK, your employees don’t pay tax under the PAYE system or PRSI on the pension contributions made by you.

Consequently, these contributions aren’t subject to the total earning and age-based limitations we discussed earlier.

What Is the Tax Relief On Employer Pension Contributions?

In Ireland, employer contributions to your employees’ pension schemes can be offset against corporation tax, reducing your costs by 12.5%.

This applies to contributions made to approved pension schemes, and there is no upper limit on tax relief for these contributions. 

But here’s the thing:

Setting up and managing employee retirement benefit plans can involve extensive paperwork and substantial administrative costs.

Want a simple and cost-effective way to set up occupational pensions?

A trusted platform like Kota allows you to set up and enrol your employees in a compliant occupational pension plan with just a few clicks.

Kota lets you:

• Instantly enrol, manage, and scale pensions on a digital app.

• Offer a flexible defined contribution pension scheme via Irish Life. 

• Give your employees complete control over their contributions so they can make changes as needed.

• Integrate pensions with your existing human resources (HR) and payroll systems for seamless data management.

So what are you waiting for?

Join Kota today and help your employees save for retirement with our digital pensions app.

7 FAQs About Tax Relief on Pension Contributions in Ireland

Here are answers to some commonly asked questions about Irish tax relief and pension contributions:

1. What Is the Difference Between a Tax Credit and Tax Relief?

• Tax credits in Ireland reduce the amount of tax payable. They are deducted directly from the tax due.

• Tax reliefs decrease the taxable income and are deducted from a person’s income before tax calculation.

2. What Is the Difference Between Ordinary and Special Pension Contributions?

• Ordinary Contributions are regular pension payments made towards your employees' pension pot, usually deducted from their salary every month. 

• Both you and your employees can contribute, and the amount is based on a percentage of the employee’s income. 

• These contributions are eligible for tax relief. The amount of tax relief your employees can get is subject to age-related percentage limits, which increase with age. For example, your employees under 30 can receive tax relief on up to 15% of their earnings, while those aged 30 to 39 can get relief on up to 20%, and so on.

• Special Contributions are one-off, lump-sum payments made to boost pension savings. You or your employee can make them, often near the end of the tax year. 

  • These contributions help maximise tax relief or make up for missed contribution payments. They also qualify for tax relief and can be backdated to the previous year if made before October 31st.

3. Can Employees Claim Tax Relief on Additional Voluntary Contributions Made Towards a PRSA?

Your employees can get tax relief on Additional Voluntary Contributions (AVCs) made to Personal Retirement Savings Accounts (PRSAs).

The amount of relief depends on age-related percentage limits, which are calculated based on their income from employment. These limits include any regular pension contributions they've already made through their job.

4. Can Employees Claim a Backdated Pension Tax Relief on Their 2024 Income Tax?

Your employees can claim backdated relief for the 2024 tax year by making a lump sum of Additional Voluntary Contributions (AVCs) on or before 31st October 2025.

5. Can Employees Claim Their Pension Early in Ireland?

Most people can cash in their pension when they turn 50 and still be eligible to claim a 25% tax-free lump sum amount.

But there’s a catch:

If your employees are members of an occupational pension scheme, they must no longer work for the employer that set up the pension scheme.

Members of PRSA or defined contribution schemes can also claim their pension early if they’re unable to work due to sickness and have valid medical evidence.

However, your employees will get less money than if they worked till the normal retirement age.

6. Do Employees Have to Pay Capital Gains Tax on Their Pension Fund?

Your employees don’t have to pay Capital Gains Tax (CGT) on the growth of their pension fund. This means any gains made within the fund are tax-free.

However, when they withdraw money from their pension, either as a lump sum or regular payments, they may have to pay income tax, depending on the amount they withdraw. 

7. What Are Some Tax-Exempt Pensions in Ireland?

The following pension incomes are exempt from taxes in Ireland:

• Wound and disability pensions

• Military gratuities and demobilisation pay

• Pensions and other allowances to War of Independence veterans and their families

• Magdalene Laundry payments

• Foreign occupational and social security pensions (exempt only if the recipient lived in the country that offered the pension)

Optimise Tax Savings in Ireland with Pension Contributions

Tax relief is an excellent incentive for employees and employers to contribute towards pensions.

For your employees, it reduces their income tax, which is especially beneficial for higher-rate taxpayers. Meanwhile, you benefit from corporation tax relief on employer contributions.

Stay updated with the latest tax relief limits on pension contributions, and refer to this detailed guide to maximise tax relief benefits.