Types of pensions

Personal Pension

A personal pension is a personally owned pension, held in your name. Unlike a company pension plan, where your employer may make contributions to your pension, only you can make contributions to a personal pension.

A personal pension is suitable for anyone saving for their retirement. It is mainly suited to those who are self-employed, or whose employer does not offer a pension scheme.

There may be minimum and maximum amounts to contribute depending on the policy with your insurer.  Tax relief is available on contributions to the policy to encourage saving for retirement. Tax relief reduces the real cost of your pension.

Tax relief on your pension contributions is provided by deducting the pension contribution amount from your income before calculating your relevant income tax.  However, tax relief for PRSI and USC is not available. The tax you save is calculated at the highest rate of income tax that you pay (currently either the standard rate of 20% or the higher rate of 40%).

If you’re self-employed, you’ll need to include your pension contributions in your self-assessment tax returns to get income tax relief. If you’re an employee and your personal contributions are taken from your bank account, you can apply to your local inspector of taxes to have your tax credits adjusted to reflect your pension contribution.

You can increase or decrease your contributions as agreed with your insurer.

Normally, once you’ve put money into a personal pension you can’t withdraw it until you reach the age of 60.  However, you may agree with the insurer to retire early due to specific personal circumstances as ill health, and take your benefits from your personal pension immediately.

Finally, you can draw a tax-free cash sum at retirement. When you retire, you can currently take up to 25% of the value of your pension policy as a tax-free lump sum.