What happens when you retire?

Members of ECI (Early Childhood Ireland) register here today to appoint your designated PRSA pension provider. As an employer you are compelled to have a designated pension provider available to all your employees.

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Starting a pension plan is one of the wisest investment decisions you will ever make. There is no simpler, easier or more tax-efficient way of saving money for your retirement - and you're going to need a lot more money than you think to retire comfortably.

So what is a pension plan?

Pension plans are simply a very tax-efficient way of saving up a fund of money for when you retire. By the time you stop working, you may well have paid off your mortgage, but unfortunately other bills will still keep coming in, and as you will no longer be earning a regular income you are going to need the benefits of a good income to help you maintain your standard of living in retirement.

When you take out a pension you invest either regular contributions or one-off contributions, or both into a pension plan that will provide an ongoing income whilst you are in retirement. Most people choose regular contributions because it is easier and smoothes out the cost.

Could you retire on €12,000 per year?

The state pension is currently only €230.30 per week. Most people who retire at 60 can now expect to live for at least another 25 years. That’s a very long time to cover your day-to-day expenses without a regular income.

Tax relief

When you make contributions into an approved pension you may then be entitled to tax relief on your contributions. Currently you can receive tax relief at your highest rate on all your pension contributions subject to a maximum percentage of your salary. Currently the older you are the higher the percentage of your salary you can contribute into your pension.

Current bracket:

Tax Relief by Age Bracket
Under 30: 30 to 39: 40 to 49: 50 to 54: 55 to 59: 60 and over:
15% 20% 25% 30% 35% 40%

Growth

When you invest your contributions in a pension fund the pension provider aims to achieve a reasonable investment return on your fund which along with the tax relief available under pension funds aim to provide the funds that will become available to you at retirement.

When can I retire?

The current state retirement age is 65 but under personal and company pension arrangements you can retire between age 60 to 75. Approval can be sought to retire before age 60 in certain circumstances.

The State Pension (Contributory) is paid to people from the age of 66 who have enough Irish social insurance contributions. It is not means-tested. You can have other income and still get a State Pension (Contributory). This pension is taxable but you are unlikely to pay tax if it is your only income.

The State Pension (Non-Contributory) may be paid from age 66 to people who do not qualify for a State Pension (Contributory). The Social Welfare Law Reform and Pensions Act 2006 changed the name of the Old Age (Non-Contributory) Pension to State Pension (Non-Contributory). The new name came into effect on 29 September 2006.

Changes to the qualifying age for State pensions

The Social Welfare and Pensions Act 2011 made a number of changes to the qualifying age for State pensions. The qualifying age will rise to 67 in 2021 and 68 in 2028. So:

  • If you were born on or after 1 January 1955 the minimum qualifying State pension age will be 67
  • If you were born on or after 1 January 1961 the minimum qualifying State pension age will be 68