Are pensions taxable income?
When planning your financial future it's important to know what the likely taxes will be on your pension when you retire.
Income tax applies to almost all income and so even when you have retired you are still subject to the same general tax rules as everyone else. However, there are some exceptions and depending on how much your income is in retirement, will determine how much tax, if any, is paid on your retirement income.
How are pensions taxed?
You pay tax in a lump sum on your pension when you receive it, however up to €200,000 of this is tax-free. If the lump sum is over €200,000 and under €500,000 (the maximum allowable), the income tax rate is 20%.
Up until Budget 2016, there was an additional charge on retirement funds in the form of a pension levy. However this levy was abolished in 2015.
No one starts out knowing exactly what they'll need to ensure financial wellness and security in retirement years or what taxes and charges they will incur. Saving for your retirement is down to you, but to encourage you to save for you future, you will receive valuable support from the government in the form of tax relief. It's one of the most compelling reasons to save through a pension. Other forms of savings, like bank accounts or savings plans, do not attract such generous incentives. Every contribution you make to a pension plan receives tax relief based on the rate of income tax you pay (most of us pay income tax at a rate of either 20% or 40%).
With so many different plans and options available we all need some help making the decision that's right for us. Thankfully, you're not alone. From pension calculators to financial advisors, there's plenty of help available.
The information contained herein is based on Zurich Life's understanding of current Revenue practice as at June 2017 and may change in the future.