Tax Relief and Pensions

How much tax relief do I receive for a Pension Contribution

The amount of tax relief you can get on your own contributions to a pension depends on your age. Tax relief is granted at your marginal (highest) tax rate. But there is no relief in respect of PRSI and the Universal Social Charge. Historically, such reliefs were available but in recent years have been abolished.

Each individual is entitled to a maximum annual amount of earnings for which tax relief is given. This is currently (2016) €115,000 and it’s adjusted periodically by the Minister for Finance. If you make contributions, but do not get tax relief on them because you exceed the tax relief limits, you can apply for tax relief on these contributions in the future.

What are the current tax relief rates

Please see the table below which illustrates the maximum tax relieved contributions an individual can receive under current Revenue Limits.

Age Contribution Limits for Relief as a %of Net Relevant Earnings
Under 30 15%
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60 and over 40%

Employers Tax Relief

Employer contributions to pension arrangements are fully deductible for corporation tax purposes up to certain limits

Contributions paid by employers to occupational pension schemes are not treated as a benefit-in-kind and can be paid in addition to the contribution limits for employee contributions.

Contributions paid by employers to PRSAs are treated as a benefit-in-kind but income tax relief is provided subject to the overall contribution limits for employee contributions.  Employer contributions to PRSAs are not subject to PRSI or the Universal Social Charge (USC).

Tax on pension assets

Tax is generally not charged on the investment income or capital gains earned by pension funds. However, the Minister for Finance introduced a temporary Pension Levy of 0.6% of pension fund assets, payable for each of the 4 years 2011 – 2014 and an additional levy of 0.15% for 2014 and 2015.  Therefore, in 2014 the levy increased to 0.75% and in 2015, the levy was 0.15%.  The levy was based on the market value of the pension fund on 30 June each year. The levy has been discontinued from 2016.

Tax On Pensions & Annuities

All annuity payments are taxable as income under the PAYE system & are also subject to the Universal Social Charge, but not PRSI.

State pensions are taxable but they are paid without tax being deducted. If you have an occupational pension, your tax-free allowance should be reduced when a State pension is being paid. This means that you will pay more tax on your occupational pension, to account for the tax that is due on the State pension.

There is a limit on the amount of pension income you can get from an occupational pension scheme at normal retirement age- broadly speaking this is 2/3rds of your Final Remuneration, if you have completed 10 years’ service and have no benefits from a previous scheme.

Tax on lump sums at retirement

The first €200,000 of pension lump sums payable is currently (2016) tax free. This is a total lifetime limit even if lump sums are taken at different times and from different pension arrangements.

Lump sums between €200,001 and €500,000 are taxed at 20%, with any balance over this amount taxed at your marginal rate and subject to the Universal Social Charge.

The amount of cash you can take out of a pension arrangement is limited, with different rules applying depending on the type of arrangement you have.

  • For RACs, PRSAs and people transferring to AMRF/ARFs at retirement, the cash limit is 25% of the retirement fund.
  • The amount of cash you can get from an occupational pension scheme at normal retirement age is broadly 1.5 times your Final Remuneration, if you have completed 20 years’ service & have no benefits from a previous scheme.

Tax on AMRF/ARFs

Any amounts drawn down from an Approved Minimum Retirement Fund (AMRF) or Approved Retirement Fund (ARF) are taxed as income and are also subject to the Universal Social Charge.

Where the ARF owner reaches 61 years of age or over during the tax year and where an ARF is set up after 6 April 2000, an imputed distribution is calculated as a percentage (currently 4% (2016)) of the market value of assets in the ARF on 31 December each year.

The imputed distribution rises to 5% where the ARF owner reaches 71 years of age.

The imputed distribution at all ages over 60 is 6% for those with ARF assets and vested PRSAs worth over €2 million. Tax is levied on this amount as if it had been drawn down.

Tax on Benefits on Death

Benefits from a pension fund on the death are assessable on the receiver for the purposes of Capital Acquisitions Tax (CAT) and/or income tax.

Lump sums payable are subject to CAT. Under current legislation, spouses including divorced spouses pay no CAT. Payments to children & other beneficiaries are subject to the CAT thresholds which apply to them (See other section TBA)

Spouses’ and dependants’ pensions are payable subject to income tax in the course of payment, and the Universal Social Charge, but not PRSI deductions.

Benefits payable from AMRF/ARFs can be passed to a spouse or civil partner without payment of CAT or income tax.  (A tax rate of 20% applies subsequently on the death of the spouse or civil partner).

Benefits payable to a child under 21 are subject to CAT but not to income tax.

Otherwise AMRF/ARFs are treated as if they had been drawn down on death and are subject to marginal rate income tax (or 30% if inherited by a child over age 21) and also Capital Acquisitions Tax if inherited by strangers.

Lifetime Limit on Pension Fund

Individuals have a maximum lifetime limit on the amount of their retirement benefits from all sources (except State pensions).

The limit (known as the Standard Fund Threshold (SFT)) is a limit or ceiling on the total capital value of pension benefits that an individual can draw from tax-relieved pension arrangements. From 1 January 2014, the absolute value of the SFT is €2 million.

From the same date, the value of a defined benefit differs depending on the age at which the pension is drawn down. If the aggregate value of your pension arrangements exceeds €2 million, may be possible to apply to Revenue for a Personal Fund Threshold (PFT) certificate in advance of your retirement date.

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