Everything you need to know about private pensions

Zurich has been operating in the pension industry in Ireland for over 40 years. The Investment and Pension Provider Excellence Awards from Brokers Ireland, 2023₁ are just some of the many industry awards we have won during this period.

Starting a pension plan is one of the smartest decisions you can make. It could help ensure a brighter, better future to look forward to. Today the State Contributory Pension is worth about €277 a week₂. While the State pension is helpful, will it be enough to give you a comfortable life in retirement?

What are private pensions?

Private pensions are set up by someone in non-pensionable employment or by people who are self-employed. They provide you with an income in retirement. This can be a Personal Pension or a PRSA. Both qualify for the same tax relief and have the same options at retirement.

Are private pensions worth it?

Yes, without a private pension you can expect to have an income in retirement of just the State pension, currently €14,419 per annum. This represents a large income drop for most people.

Why are there advantageous tax benefits for contributing to a private pension?

Tax relief is by far the greatest advantage of saving in a pension, and in contrast to a savings account, contributions to a pension plan qualify for tax relief. Pensions are the only investment that will give tax relief on contributions at the persons marginal rate of income tax (20% or 40%). There is an income cap of €115,000 and age related limits apply for contributions. The fund is also allowed grow gross of tax.

What’s the difference between a personal pension and PRSA?

Very little, each are considered to be individual plans, both are available for people in non-pensionable employment or if they are self-employed or directors. Personal Retirement Savings Account (PRSAs) have a limited range of funds, where as personal pensions can usually access all funds provided by the pension provider. There may be a lower charging structure available on personal pensions. PRSAs are probably more flexible, there are never exit penalties, charges are capped and there are no charges for transferring to another provider.

Can I withdraw money from a private pension fund?

A private pension is usually only accessible from age 60 onwards with no requirement to cease working. Early access could be possible in certain circumstances, for example ill health.

At what age can I withdraw a private pension?

You can withdraw your pension from age 60 onwards.

What happens when I retire?

You can take 25% of the accumulated fund as a lump sum tax free up to €200,000. Anything between €200,000 and €500,000 is taxed at 20%. With the balance you can buy an annuity (income for life) or re-invest in a post-retirement fund which is called an ARF (Approved Retirement Fund).

What happens to my pension fund if I die?

The full value of a personal pension is paid to your estate tax free.

Do I need a private pension?

If you are happy with the State pension as your only income in retirement that’s fine, but for most people this won’t be sufficient to enjoy an active retirement and maintain their current lifestyle. So, a private pension is vital to bridge the gap between the State pension and your employment income.

Is a private pension better than a savings plan for long term savings?

Yes, due to the tax relief available on contributions and tax-free growth in the fund.

How are private pensions taxed in Ireland?

The initial lump sum is tax free – based on limits outlined earlier. And the income drawn from the post-retirement product (ARF or Annuity) is subject to income tax at your marginal rate.

Are pension funds protected?

Most pension funds are invested in equities, bonds and other asset classes, and will fall and rise in line with the markets.

How can I set up a personal pension?

Sound advice is invaluable, so it’s a good idea to seek advice from a financial broker/advisor who can guide you through the process and help you select the right pension plan for your circumstances. You can get a free consultation with Zurich financial advisors to get started. 

Conclusion

Your retirement may seem like a lifetime away, but the truth is, the sooner you start planning for it, the brighter your future will be. How much you save is entirely up to you, but it usually depends on when you would like to retire, what lifestyle you would like in retirement and how much you can afford to save.  A simple way to check how much you could save is to use our pension calculator.

Take the next step and begin your pension journey today…

Find an advisor   Contact Form   Call 0818 804 164

₁Investment Provider Excellence Award, Brokers Ireland, 2022; Pension Provider Excellence Award, Brokers Ireland, 2023.

₂Citizens Information, January 2024.

The information contained herein is based on Zurich's understanding of current Revenue practice as at 01 March 2024 and may change in the future.