Taxation and Pensions

You can get Income Tax (IT) relief against earnings from your employment for your pension contributions (including Additional Voluntary Contributions (AVCs)). Pension contributions to these types of pension plans:

• Occupational pension schemes

• Personal Retirement Savings Accounts (PRSAs)

• Retirement Annuity Contracts (RACs)

• Qualifying overseas plans.

This is subject to the limits below. IT relief is given at your ‘marginal’ (highest) IT rate.

There is no relief from Universal Social Charge (USC) or Pay Related Social Insurance (PRSI) for employee pension contributions.

Limits for tax relief on pension contributions

Tax relief for employee pension contributions is subject to two main limits:

• An age-related earnings percentage limit

• A total earnings limit.

Age-related earnings percentage limits

You can get tax relief, up to the relevant age-related percentage limit of your earnings in any year.

You might have more than one source of income. If you do, this relief is only from the source of income in respect of which the contributions are made.

Age-related percentage limit for tax relief on pension contributions

Age Percentage limit

Under 30  15%

30-39 20%

40-49 25%

50-54 30%

55-59 35%

60 or over 40%

Total earnings limits The maximum amount of earnings taken into account for calculating tax relief is €115,000 per year.

Section 790A Taxes Consolidation Act 1997 (TCA) provides that an aggregate earnings limit applies for the purposes of giving income tax relief to an individual on contributions made to certain pension products (see below). This limit is currently €115,000.

Occupational & Statutory Pension Schemes, Retirement Annuity Contracts, PRSAs and Qualifying Overseas Pension Plans.  The reference to “personal pension plan” applies to a Retirement Annuity Contract (RAC) and/or a Personal Retirement Savings Account (PRSA).

Taxation of Pensions:

In general, all income arising from pensions in Ireland is subject to taxation. This document sets out the way in which pensions are taxed. Occupational pensions are taxable. Many pensioners do not actually have to pay tax, because their income is too low.

Occupational pensions are subject to tax under the PAYE system (the ‘Pay-As-You-Earn’ System) so the process is the same as that applied when you were being paid your salary. If you have both an occupational pension and a social welfare pension, you may have to pay tax on both. Read more about taxation of social welfare payments here.

Occupational pensions are not subject to social insurance contributions (PRSI) but if you are aged under 66, you may have to pay PRSI on other income. Occupational pensions are subject to the Universal Social Charge (USC).

The general tax credits available to people aged 65 and over are described in our document on taxation for people aged over 65 and on the Revenue Commissioner’s website.

Occupational pensions are taxed in the same way as salaries and wages. If you are getting an occupational pension from an Irish source, it is usually taxed under the PAYE system in exactly the same way as you were taxed while employed. If your pension comes from outside Ireland, you usually pay tax in a lump sum annually.

If you are living abroad and you receive your pension from Ireland, it may or may not be taxable under PAYE. If there is a Double Taxation Agreement, you may be exempted from Irish tax (but usually liable in the other country). If this is the case, the Revenue Commissioners may notify the payer of the pension (i.e., your former employer, the pension fund, etc.) that income tax is not to be deducted under PAYE. If the Revenue Commissioners do not notify the pension payer, then PAYE must be deducted in the usual way.

If you have social welfare and occupational pension

There is no mechanism for taxing social welfare pensions at the source. Your other source of income determines how tax is levied. The most common situation is where a pensioner (State Pension (Contributory) or Widow’s/Widower’s/Surviving Civil Partner’s (Contributory) Pension) has both an occupational pension and a social welfare pension. If the occupational pension is paid from within Ireland, it is taxed by PAYE in the same way as a wage or salary. This means that you get your tax credits in the normal way. In order to tax your social welfare pension, your annual tax credits are reduced by the tax liability on your social welfare pension. For higher incomes, the standard rate cut off point will also be reduced. You then effectively pay tax on both the pensions, but it is collected from the occupational pension. The technical term for this is coding in of credits. The same arrangement applies if you have income from a job and a social welfare pension.

If your social welfare pension was not coded in, you would have to pay tax as a self-employed person in a lump sum by 31 October each year.

If your other source of income is not taxed on the PAYE system, for example, if you have an occupational pension from abroad or you have investment income, then you are classed as a self-employed person and your tax is payable annually by 31 October each year.

If you have a social security pension from abroad, it is also generally taxable in Ireland. The tax is payable annually unless you have a source of income that is subject to PAYE.

Double Taxation Agreements

Double Taxation Agreements generally make a distinction between pensions payable by governments to former employees and pensions payable by private employers. There are some variations between the agreements and not all agreements make this distinction and they vary in other ways so you would need to check how exactly you are affected.

Most of them provide that pensions for non-governmental employees are taxed in the country of residence. So, if you are living in Ireland and getting an occupational pension from another country, you should generally receive it gross and then pay Irish tax on it.

The opposite is the case for pensions for former Government employees – generally, they are taxable only in the country where they are paid. So, if you are a former employee of the US government now living in Ireland, you pay tax on your occupational pension in the USA only. In some cases, this applies to pensions from local authorities or other political sub-divisions – again, the particular agreement needs to be checked.

Pay Related Social Insurance (PRSI)

If you are over 66, you are not liable to pay PRSI contributions at all. Find out more about social insurance in Ireland.

If you are under 66 and are employed or self-employed, you pay PRSI on your income from that employment or self-employment. You do not pay it on your occupational or social welfare pension.

Universal Social Charge (USC)

The Universal Social Charge (USC) replaced the health contribution and the income levy from 1 January 2011. All social welfare payments including pensions are exempt from the USC. However, occupational pensions are subject to USC. The rate you pay varies depending on your age and on whether you hold a full medical card. See our document on the Universal Social Charge for more information.

Tax-Free Lump Sums

First €200,000 – Exempt, 

Next €300,000 – Standard rate income tax 

Balance –  Marginal rate income tax + USC.

Tax-free retirement lump sums taken on or after 7th December 2005 will count towards “using up” the tax-free amount so that if an individual has already taken tax-free retirement lump sums of €200,000 or more since 7th December 2005, any further retirement lump sums paid to the individual will be liable to income tax at either standard rate, or at a marginal rate where the aggregate retirement lump sums exceed €500,000.

 Income Exemption Limits:

Income tax applies to almost all income. People aged 65 and over are subject to the same general tax rules as everyone else but they do get tax exemption limits below which they pay no tax and some extra tax credits.

A person aged 65 and over is exempt from income tax where his or her total income is less than the relevant exemption limit. For married couples or civil partners, who would be otherwise entitled to the joint personal tax credit specified in section 461(a) TCA 1997, the income tax exemption is available where their total joint income is less than the relevant exemption limit.

Personal circumstances Exemption Limits

Single, widowed or a surviving civil partner €18,000

Married or in a civil partnership €36,000