Private Pensions in Ireland Explained: A Guide for Employers

A private pension in Ireland helps your employees save for retirement beyond the State Pension, providing greater financial security in later life. 

It allows for retirement savings through regular contributions, often with tax advantages for both your business and staff.

Let’s explore how private pensions work and what they mean for your company and employees. 

What Is a Private Pension in Ireland?

A private pension is a broad term that refers to any pension scheme provided by a private entity, such as Irish Life, and not the State. It allows individuals to save for retirement with contributions from themselves, their employer, or both, helping to build financial security for the future.

Private pensions are often seen as a way to supplement the State Pension, ensuring a more comfortable retirement by providing additional income. 

These schemes can also offer tax advantages, making them a valuable part of your employee’s long-term financial planning.

Types of Private Pensions in Ireland

There are two main types of private pensions — occupational pensions and personal pensions.

We’ll discuss both. 

A. What Is an Occupational Pension in Ireland?

An occupational pension is a retirement savings plan you set up as an employer to help your employees save for retirement. It’s also known as a company pension plan. 

You contribute to the pension fund, and your employees can choose to make contributions, often with tax relief on their payments.

For a deeper dive into how occupational pension schemes work, including contributions and tax relief, read our detailed guide on Occupational Pensions in Ireland. 

Want to offer an occupational pension scheme to your employees?

Join Kota. 

Kota is a digital pension platform that lets you instantly set up a compliant occupational pension scheme for your Irish team — without any paperwork and administrative overheads.  

B. What Is a Personal Pension in Ireland?

A personal pension is a retirement savings plan that allows individuals to contribute to their pension fund either through regular payments or once-off lump sum contributions.

It’s commonly chosen by individuals who:

• Are self-employed.

• Work for an employer that doesn’t offer an occupational pension scheme.

• Prefer not to join your company pension plan.

While personal pensions are often used in these situations, they are available to anyone looking to build their retirement savings independently, regardless of employment status.

8 FAQs About Irish Personal Pensions

Let’s dive deeper into personal pensions by answering some common questions:

1. Can an Employee Have Both an Occupational Pension Scheme and a Personal Pension Scheme?

Yes, your employees can have both an occupational pension and a personal pension, but they may not be eligible for full tax relief on both. 

Typically, an employee cannot contribute to both an occupational pension and a personal pension for the same job while receiving full tax benefits.

2. How Do Personal Pension Schemes Work?

Personal pension schemes in Ireland are managed by life assurance or investment companies. They distribute your employee’s pension contributions in different investment options like government bonds, stocks, equities, etc.

When your employee retires, their pension savings will consist of their monthly contribution and any investment growth. 

3. When Can Your Employee Claim Their Personal Pension Fund?

Your employee can claim their personal pension in any of the following cases:

• They are above 60 and under 75 years of age. In this case, they don’t have to take retirement or stop working to claim their personal pension fund.

• They are in a profession where the usual retirement age is before 50, such as sportspersons like football or rugby players. 

• They suffer from a severe illness and are unlikely to work again — in this case, they can claim their pension at any age.

4. What Are the Types of Personal Pension Schemes in Ireland?

There are two main types of personal pensions available in Ireland:

i. Personal Retirement Savings Account (PRSA) 

A PRSA is an investment account for retirement savings. It allows your employees to make regular or lump-sum contributions, often with tax relief. 

As an employer, you are required to provide access to a standard PRSA in any of the following cases:

• You don't offer an occupational pension scheme.

• Your existing pension scheme excludes certain employees or imposes a waiting period exceeding six months.

• The scheme doesn't permit Additional Voluntary Contributions (AVCs).

You can contribute to your employee’s PRSA — although you aren’t legally required to. These contributions will be subject to the Finance Act 2022. 

ii. Retirement Annuity Contract (RAC) 

A RAC is a pension plan approved by the Revenue, typically used by self-employed individuals or those without access to an occupational pension scheme. 

Your employee’s contributions are invested, and the retirement benefits depend on total contributions, investment performance, and the cost of purchasing pension benefits. 

Generally, only individuals with "relevant earnings," such as income from self-employment or non-pensionable employment, can set up an RAC.

5. How Is Personal Pension Taxed in Ireland?

All pension schemes in Ireland (except the State Pension) are subject to tax under the PAYE (Pay As You Earn) system. 

Your employee must pay income tax on their annual retirement income if they are an Irish citizen above 66. 

The initial portion of their income is subject to a standard tax rate of 20% based on the standard rate cut-off points, and the Revenue may tax any remaining income at a higher rate of 40%.

Here’s an example:

Suppose your employee is single and earning less than the standard cut-off point of €42,000 (for a single person). The Revenue will tax their entire income at a standard rate of 20%. 

However, if they earn more than €42,000, the Revenue will tax the initial €42,000 of income at a standard tax rate of 20% and the remainder at a higher tax rate of 40%.  

6. Can Your Employees Get Tax Relief on Personal Pension in Ireland?

Employees under 75 can receive tax relief on personal pension contributions, subject to certain limits:

• Age-Related Percentage Limits: A percentage of earnings eligible for tax relief increases with age.

• Earnings Cap: The maximum earnings considered for tax relief is €115,000 per year. 

• Standard Fund Threshold (SFT): The total pension fund value eligible for tax relief is capped at €2 million. Funds exceeding this threshold are subject to a 40% Chargeable Excess Tax (CET) upon withdrawal.

Learn more about Tax Relief on Pension Contributions in Ireland. 

7. How Can Your Employee Claim Their Personal Pension Fund at Retirement in Ireland?

Your employees have several options to access their pension funds upon retirement, such as:

i. Tax-Free Lump Sum:

• Up to 25% of the pension fund can be withdrawn tax-free, with a maximum limit of €200,000.

• Withdrawals between €200,001 and €500,000 are taxed at 20%. Amounts over €500,000 are taxed at your employee’s marginal rate.

ii. Annuity Purchase:

• Your employees can use their pension funds to purchase an annuity, providing a guaranteed income for life.

• The annuity amount depends on factors such as the fund size, age, health, and prevailing annuity rates.

iii. Approved Retirement Fund (ARF):

• Pension funds can be invested in an ARF, allowing flexible withdrawals.

• While offering potential investment growth, ARFs carry investment risks, and the fund value can fluctuate.

8. What Happens to a Personal Pension Fund After Your Employee's Death?

If your employee in a personal pension scheme dies before retirement, the amount in their pension fund typically becomes part of their estate (e.g., property, possessions, savings, and investments) and is distributed to their spouse or civil partner.

If they don’t have a spouse or civil partner, they can nominate beneficiaries under a trust who can claim the pension benefits after their death. Employees can name beneficiaries by completing an Expression of Wishes or Nomination Form with their pension provider.

It also varies depending on based on the type of retirement option your employee opted for:

i. Annuity:

• If the employee had purchased a single-life annuity, the pension payments cease upon their death, and no further benefits are passed to dependents.

• If they had a joint-life annuity, their spouse or civil partner would continue receiving the annuity payments after their death.

ii. Approved Retirement Fund (ARF):

• If the employee had an ARF, the remaining pension fund becomes part of their estate and is treated as taxable income in the year of their death.

• The tax treatment varies based on the beneficiary. For example, if your employee’s spouse or civil partner inherits the ARF, they will not have to pay the Capital Acquisition Tax (CAT). But if someone other than the spouse or children inherits their ARF, they must pay the CAT and income tax at a 40% marginal rate. 

Support Your Team with Irish Private Pensions

Private pensions play a key role in helping employees plan for a secure retirement. 

While personal pensions are typically arranged by individuals, employers can set up occupational pensions or provide access to PRSAs to support staff retention and financial well-being. 

Providing pension options shows long-term care for your team, strengthening your overall benefits package.