The topic of pensions can seem dull, but it is essential due to our growing aging population. By 2047, we expect 1.8 million people over age 66. Understanding pensions is crucial.
Auto-enrollment in pension plans starts in September 2025. This may help many, but some think it is too late. The government is also considering offering a 4% higher weekly payout for those who choose to delay their pension until age 67.
John Lowe from MoneyDoctors.ie outlines five essential pension concepts:
1. Pensions Are Great Investments in Ireland
If you are in the 20% or 40% tax bracket, for every €100 you invest in your pension, you get back €20 or €40 from the government. This means your investment is up by 20% or 40% right away, making pensions a strong investment option for those with taxable income.
2. Older Contributors Maximize Tax Relief
People aged 30-40 can invest up to 20% of their earnings into their pension. For instance, with a €40,000 salary, you can invest €8,000 yearly and receive a tax credit of €3,200. This effectively costs you just €400 monthly. From 2025, auto-enrollment will encourage up to 14% of contributions over ten years, helping younger individuals save for retirement.
3. Know Your Retirement Age
Employers typically set a Normal Retirement Age of 65 or 66. However, starting in 2039, the retirement age will rise to 68. This means most workers must stay employed until that age to receive the State Pension, currently €299.30 weekly.
4. Transfer Old Pensions
If you have multiple pensions from different jobs, consider transferring them into a Personal Retirement Bond. This puts you in control. You can decide how to invest. At age 50, you can take out 25% tax-free, up to €500,000.
5. Understand Your Retirement Options
When you retire, you can access your pension fund. For instance, if your fund is €500,000, you can take out 25% tax-free (€125,000). With the remaining €375,000, you have two main options:
A. Annuity
You receive a fixed monthly payment, currently around €781.25 at a 2.5% rate. However, this amount is taxable and generally ends when you pass away, leaving nothing for your family.
B. Approved Retirement Fund (ARF)
You choose your investments, and once you turn 60, you must withdraw 4% annually. At age 71, this increases to 5%. You can take up to 15% each year without penalties.
If you pass away, your remaining ARF balance transfers to your spouse or civil partner, or to your children with a 30% tax on it.
Be proactive about your pension. Start planning and investing. Contact me if you have questions.
For more information, check out John Lowe’s profile or his website.
The views expressed are those of the author and do not reflect RTÉ’s views.
