What Is the Tax Relief on Pension Contributions in Ireland?

by Ian Gallagher | Dec 6, 2024

Are you planning for your retirement and looking for ways to save money while reducing your tax bill?

Understanding the tax relief available on pension contributions in Ireland can be a key part of your financial planning. Pension contributions not only help you build a secure future, but they also offer tax benefits that can lower the amount of tax you pay.

Tax relief on pension contributions means that the government gives you a reduction on the amount of income tax you have to pay if you save for your retirement.

This can make a big difference in how much you can save for your future. But how exactly does this work, and how can you make sure you’re getting the most out of it?

In this blog, we’ll explain what tax relief on pension contributions in Ireland is, how it works, and how you can make the most of it to ensure you have a comfortable and secure retirement.

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What Do Pension Contribution Limits Mean?

When you use part of your income to contribute to your pension, Revenue doesn’t include that amount of money when they calculate how much you will be charged on income tax. In other words, the money that you use for your pension contributions every month is not included as part of your total income. Therefore, since you earn less, you pay less taxes. It also means that you pay less taxes than you would’ve if you had not made contributions to a pension tax relief. Tax Relief On Pension Contributions Pension contribution limits refer to the maximum percentage of your salary that you can contribute to your pension and receive tax relief. The main factor that influences the limit is your age. As you grow older, the amount of tax relief you can receive on your pension contributions increases. This system is designed to encourage long-term saving by offering greater tax incentives as you near retirement. The pension contribution limit is essentially the maximum percentage of your earnings that you can invest in your pension with tax relief benefits. These limits are crucial for ensuring that you make the most of the tax advantages available to you while planning for your retirement. You can always contribute more to your pension then the tax reliefs allow. You just won’t receive tax relief on the amounts over the tax relief.

How Do Pension Contribution Limits Work?

The pension contribution limits work by setting a cap on the percentage of your salary that qualifies for tax relief when invested in a pension. This percentage varies depending on your age, with older individuals allowed to contribute a higher proportion of their income. For example, a person under 30 can contribute up to 15% of their salary to their pension with tax relief, while someone over 60 can contribute up to 40%. These limits are designed to encourage individuals to save more as they get closer to retirement. Here’s a breakdown of how the limits work based on age:

Age	% Tax Relief
Under 30	15%
30-39	20%
40-49	25%
50-54	30%
55-59	35%
60 +	40%

When the Revenue calculates your taxes, the first €42,000 that you earn will be taxed at 20%, and everything over that is taxed at 40%. You will commonly see this as the marginal rate of tax. The marginal rate of tax is the amount of income tax charged on the last euro you earn.

It’s also important to know that pension tax relief is subject to a salary threshold, which is €115,000. This means that only contributions deducted from the first €115,000 of your annual income are eligible for pension tax relief.

Tax Relief on Pension Contributions in Practice

To better understand how tax relief works in practice, let’s consider a practical example:

	Pension	No Pension
Annual Income	€115,000	€115,000
Pension Contributions (aged 40-49 years old)	€28,750	€0
Income Before Income Tax	€86,250	€115,000
First €44K taxed at 20%	€8,800	€8,800
Remaining Salary	€77,450	€106,200
Remainder Taxed at 40%	€30,980	€42,480
Total Tax Paid	€39,780	€51,280
Net Pay	€46,470	€63,720
Money After Tax (Income + Pension)	€75,220	€63,720
Tax Saving	€11,500

Tax Relief on Lump Sums at Retirement

When you retire, you often have the option to take part of your pension fund as a tax-free lump sum. The amount you can take as a lump sum depends on the type of pension plan you have and whether you have already taken tax-free lump sums from other pension plans. This tax-free benefit is a significant advantage of saving into a pension fund, allowing you to access a portion of your fund without any tax liability. However, there is a limit on the total amount you can withdraw tax-free. The current limit is €200,000. Any amount above this limit will be subject to income tax.

Conclusion

To wrap up, understanding tax relief on pension contributions in Ireland can help you save more for your retirement while paying less in taxes.

By contributing within the allowed limits and knowing how much tax relief you can get based on your age and income, you can make the most of your pension savings. Plus, taking a tax-free lump sum when you retire can give you extra financial support without paying more tax than you need to.

Greenway Financial Advisors is here to guide you through the process and make sure you get the best out of your pension plan. Contact us today to start planning for a secure and comfortable retirement

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The information provided is for general purposes only and does not constitute financial advice.

Always consult a qualified financial advisor who is registered with the Central Bank of Ireland for personalised guidance.

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Debbie Cheevers

Qualified Financial Advisor (QFA), Retirement Planning Advisor (RPA), Technician Member of the Irish Taxation Institute

Debbie, a Dublin native, earned her degree in Visual Communication from NCAD before transitioning into the financial sector. She brings a strong customer service background to Greenway.

She became an Accredited Product Adviser (APA) in 2017 and achieved full qualification as a Financial Advisor (QFA) in 2018. Debbie has also added a tax qualification as a Technician Member of the Irish Taxation Institute and is a certified Retirement Planning Advisor (RPA).

With a deep belief in the power of product knowledge, she is committed to guiding clients toward informed financial decisions.

Contact Debbie Now