Retirement plans are one of the few investments left that offer substantial tax breaks for individuals
What about tax relief?
The government has for a long time encouraged pension saving by allowing:
- Tax relief on contributions
- Tax free growth in all pension structures
- A tax free lump sum on retirement
Tax relief on contributions
Contributions to pension plans attract full tax relief up to certain limits. The limits are based on percentage of salary, and depend on your age. The limits are as follows and are based on a maximum salary of €115,000:
| Age | Amount which qualifies for
Tax Relief as a % of Net Relevant Earnings* |
|---|---|
| Under 30 | 15% |
| Age 30 to 39 | 20% |
| Age 40 to 49 | 25% |
| Age 50 to 54 | 30% |
| Age 54 to 59 | 35% |
| 60and over | 40% |
The advantage of tax free growth
Most investment or savings vehicles attract some form of taxation on the funds (DIRT, for example). However, retirement funds are exempt from such taxation, and this can have the effect of doubling your fund over 20 years.
A tax free lump sum on retirement
Two main options currently exist when drawing a Tax Free Lump Sum from your retirement fund and they are as follows:
1. 25% of the fund regardless of the completed services or retained benefits
or
2. Up 150% of your final remuneration inclusive of retained lump sums varying by completed services. One must have at least 29 years completed at NRA to avail of the full 1 ½ times final remuneration
The maximum life time amount that an individual can take tax free from retirement arrangements is €200,000.