Private pensions in Ireland: everything you need to know

Saving into a pension is usually straightforward if you’re part of a company pension scheme. But what if you’re self-employed, or your company doesn’t offer a group scheme? Whether you’re in one of these situations yourself, or you simply want to boost your retirement savings, it’s important to take control of your future funds and explore private pensions.

On this page, we’ll cover everything you need to know about private pensions in Ireland, exploring the different types of private pensions, who they are suitable for, and how they work.

A private pension, also known as a personal pension in Ireland, is a retirement savings plan that you set up yourself. The funds are typically managed by pension providers or investment firms, and you can choose from a range of investment options, such as stocks, bonds, and funds.

The contributions you make to your private pension are invested, and the goal is to grow your retirement savings over time so that you have a good source of income once you retire. Irish private pensions also offer tax benefits, which can make them an attractive option if you are making long-term retirement plans.

Who can take out a private pension in Ireland?

If you’re working in Ireland, chances are you’re already enrolled in an occupational pension plan through your job or a public sector scheme. This will typically be a defined contribution or a defined benefit scheme.

But if you’re not covered by these schemes, or you’re not an employee, you can still take out your own personal pension plan. If you’re looking for a pension for the self-employed, or if your employer doesn’t offer a pension scheme, this could be an option worth exploring.

Can you have a private pension and a workplace pension?

Yes, even if you’re already contributing to a company pension, you can also have a private pension at the same time. However, it’s worth keeping in mind that you might not be able to take full advantage of the tax benefits of both pension plans at the same time. What’s more, you cannot make contributions to both pensions simultaneously if they are linked to the same job.

Private pensions in Ireland work in a similar way to occupational pension schemes, in that you contribute either regularly or with a lump sum towards a retirement savings plan. These contributions are then invested to build up your pension fund over time.

When it comes to choosing a private pension, you have several options. Depending on how you want to invest your money, the following Irish private pensions might be worth considering:

• Personal retirement savings account (PRSA): A PRSA is a flexible investment account offering tax benefits, and the aim is to save for retirement over the long term. You can contribute to a PRSA alone, or in some cases with employer contributions. The pension fund you receive once you enter retirement will depend on how your investments have performed and your contributions. You can apply for a PRSA through registered providers or financial advisers, and you can choose between two types: Standard PRSAs, which offer capped charges and pooled fund investments, and non-standard PRSAs, which come with non-capped charges and a wider range of investment options.
• Retirement Annuity Contract (RAC): Often referred to as a personal pension plan (PPP), a RAC also offers tax relief on contributions. The retirement benefits you receive from a personal pension scheme will depend on factors like your contributions, investment returns, and any fees applied. You can usually set up a private pension such as a RAC through a financial institution or insurance company.
• Personal retirement bonds (PRB): If you leave an employer’s pension scheme, PRBs offer a way to keep getting retirement benefits. They’re individual policies set up by pension trustees, allowing you to transfer pension benefits into a bond for investment.

When deciding whether to opt for a private pension scheme, it’s important to be comfortable with the level of risk you are taking, as well as the fees you’ll be expected to pay. You might start by comparing individual pension plans to find one that best suits your financial goals.

When you reach retirement age, you have options for your private pension. The main thing to note is that you can take a tax-free lump sum of up to 25%, up to a maximum of €200,000.

After that, you can choose to transfer all or part of your retirement fund into an annuity or an Approved Retirement Fund (ARF), which will give you a regular income throughout your retirement years.

Here’s a quick overview of your options once you’ve reached retirement:

• Annuity: Provides a secure, regular income for life in exchange for part or all of your retirement fund. The income you receive will depend on the size of your fund, age, health, and whether you are providing for dependents.
• ARF: Offers flexibility by allowing you to keep your pension fund invested after retirement, with the option to withdraw funds as needed for income. However, because your fund is invested in various assets like stocks, property, bonds, and cash, there is a risk that it loses value over time.

In Ireland, you pay income tax on any retirement income from private pensions, including annuities and withdrawals from ARFs or PRSAs. You’ll also be able to claim tax credits based on your personal circumstances, which can help reduce how much tax you pay. You’ll pay a 20% tax rate on income up to the standard rate cut-off point, while any amount above that is taxed at 40%.

It’s also important to keep in mind that some pension income may be subject to Pay Related Social Insurance (PRSI) and Universal Social Charge (USC).

It’s often worth discussing your individual tax situation with your pension provider and local Revenue office, as taxes are deducted directly from pension payments.

Advantages:

• Tax relief: The main advantage of private pensions in Ireland is the tax benefits, with contributions qualifying for tax relief at your income tax rate (20% or 40%).
• Time to grow funds: Your pension fund has the potential to grow over time through long-term investments, providing a source of income in retirement.
• PRSAs flexibility: With PRSAs, you can choose between regular or lump sum contributions and continue contributing after retirement. Also, if you change jobs, it’s easy to take your private pension plan with you.

Disadvantages:

• Investment risk: There’s always a risk that investments within your pension fund may not perform as expected, and you may end up with lower returns.
• Fees and charges: Private pensions often come with management fees and charges, which can eat into your overall retirement savings.
• Early access restrictions: Another drawback of personal pension plans is that you may be unable to access your funds before age 55 without fees and charges. This is something worth considering if you are thinking about taking early retirement.

Deciding whether to open a private pension scheme or save your money instead is a personal decision that will depend on factors such as your plans for retirement, the level of flexibility and risk you’re happy with, and whether you have enough for the lifestyle you want in the future.

While the main advantage of an Irish private pension is the tax relief, you might be put off by the uncertainty and risk that comes with the investment options.

If you think you may need access to your cash before retirement age, you might prefer to look at a high-interest savings account such as a deposit account. With a deposit account, you lock your savings away for a set period of time (typically ranging from three months to five years) and get a competitive interest rate in return.

At any point in your retirement planning journey, it can help to consider your savings options. By opening a free account with Raisin Bank, you can access and apply for a wide range of savings accounts. All you have to do is register for a Raisin Account for free, choose an account to suit you, transfer your funds, and watch your money grow.