Retirement Planning:

Personal Pension Plan

A personal pension plan is a retirement structure available to the self-employed individual or to those in non-pensionable employment. The traditional insured personal pension plan is administered for the holder by a life assurance company or investment firm in order to provide benefits for the holder in retirement. The value of the pension fund at retirement will depend on the level of contributions made to the plan, the investment growth of the fund and the level of pension charges paid throughout the term of the plan.

Benefits of a Personal Pension Plan

  • Tax relief on contributions: There is relief available against income tax only (not USC or levies) meaning that for each personal pension contribution made the holder can receive up to 40% of a tax break.
  • Attractive tax free investment growth: The fund in which contributions are invested benefits from tax free investment growth unlike most other saving methods which are generally liable for tax.
  • Tax Free Lump: At retirement the holder can draw down a tax free lump sum of 25% of the value of the fund.
  • Life Cover: Life cover benefit can be provided within these structures in a tax efficient manner whereby premium costs can be paid with tax free money.
  • Funds: There is access to a diverse range of funds facilitated by the relevant life company or investment firm.
  • Benefits on death: The entire value of the personal pension fund passes to the next of kin.

Tax Relief/Net Relevant Earnings

Holders of a personal pension plan are entitled to receive full income tax relief at their marginal tax rate on their pension contributions. However, there are limits on the amount of tax relief that can be claimed. As illustrated in the table below, these limits are determined by the person’s age and is a percentage of their Net Relevant Earnings, up to an “earnings ceiling” of €115,000. Holders of these plans are entitled to pay their pension contributions monthly or annually by direct debit or can pay a “once-off” contribution by the end of the tax year depending on their taxable earnings.

AGE % of relevant earnings eligible for tax relief
Under 30 years 15%
30 – 39 years 20%
40 – 49 years 25%
50 – 54 years 30%
55 – 59 years 35%
Over 60 years 40%