A Guide to Early Retirement in Ireland

The ability to retire early and access a tax-free lump sum is a huge incentive for many. It is one of the biggest advantages of contributing to a pension arrangement.

However, the age at which you can access these lump sums is also important. Below we look at the different types of arrangements and what access you can access each.

As with anything, there are some nuances with the above. Below we break each down in further detail.

As per the table above, members in these arrangements can potentially access their benefits from age 50.

However, it will be dependent upon the specific scheme rules. A Defined Benefit Pension (DB) arrangement is designed to provide you a pension for life after retirement.

The amount you’ll receive is calculated through a combination of salary and length of service. Alternatively, it may be calculated as 1.5 x your final salary.

Each DB scheme may have a different ruleset, it is important to analyse your personal situation before making any decisions.

Early retirement from a Defined Contribution (DC) will be allowed from age 50 once certain criteria have been met.

Similar to a DB arrangement, the criteria will be scheme-specific. However, in most cases, once you have left the employment where benefits accrued, and are 50 or over, you will likely be eligible to access your benefits.

The amount you receive will depend on your level of contributions along with the fund performance.

An Executive Pension Plan is designed for company owners and directors. These plans come with certain advantages with regard to the allowable level of contributions while receiving tax relief.

You will be eligible to access your Executive Pension Plan from age 50 onwards. However, this is generally not advised without consulting an advisor.

An Executive Pension Plan can also be an efficient way of extracting wealth from your business.

Recommended reading:  Our Executive Pension Plan Guide

As a general rule, you will be eligible to access a PRSA from age 60. Although, should you be retiring from employment, you may be able to access benefits from 50.

Similar to other pension arrangements, this will be scheme-specific. If you are unsure of your eligibility, contact your scheme administrators.

A Personal Pension arrangement follows similar rules to a Personal Retirement Savings Account (PRSA) when it comes to early retirement.

Benefits can be accessed from age 60. 

At this point, it should be noted that early retirement or accessing a pension arrangement early is not a decision that should be made lightly.

As you begin drawing down your funds, you run the risk of bombing out. This means you may not have sufficient funds within your pension in the future.

Enlist the help of a qualified advisor and discuss your long-term plans and financial goals.

Early retirement is something many business owners and company directors strive towards. However, in some cases, it may not be as simple as just exiting the business.

If you have other partners or major shareholders, they will also need to be considered. As we touch on below, extracting wealth from a company can be a complicated process.

There are several factors that must be taken into account before departing a business as a major shareholder.

The percentage of shareholding you have will also directly impact on what age you can access your benefits.

As a director holding a 20% or more shareholding, there are certain stipulations with regard to early retirement.

In general the normal retirement age will be between 60-70. However, in some cases, exceptions are made subject to Revenue approval.

Early retirement as a 20% director comes with some caveats. One being that you must sever all links with the company in question.

This includes disposing of all shareholding held within the company. A disposal to a spouse or children will not be sufficient.

Although, a disposal to a child working within the business may be permitted.

This area requires a specific skill set when receiving guidance. We offer a complimentary consultation for those who may need assistance.

The ability to efficiently extract wealth from a company may be a major part of your plan to retire early.

However, extracting wealth from a company must be a thought-out process. When considering extracting wealth, you have three main options. Although one of the options we have outlined involves leaving money in the business.

1.Leave profits in the business

This option comes with the issue of corporation tax. This means that any profits left in the business will be taxed at 12.5%.

2. Take profit as a salary

Extracting wealth from your business via a salary is another option. However, this method will have hefty tax implications.

However, paying yourself through company dividends will leave you liable to income tax at your marginal rate, PRSI and USC.

3. Extract wealth via a pension plan

Using a pension plan to extract wealth from your business is often a popular option. It allows you to do so in a tax-efficient manner while also saving for the future.

An Executive Pension Plan is often the arrangement of choice for company owners and directors. This will have two major tax advantages:

1. Tax relief for the company – Any contributions made to an Executive Pension Plan can often be offset against corporate tax.
2. Tax relief for the director – Contributions to a pension arrangement will be eligible for tax relief within certain limits.

If you are a company director or shareholder and are looking to assess options regarding extracting wealth, a consultation may be a worthwhile exercise.

When looking at extracting wealth from a company, retirement relief is another potential outlet.

As you plan an exit from the business, it is important to look at minimising tax implications. Utilizing retirement relief may significantly reduce the tax bill.

Retirement relief is a relief from Capital Gains Tax (CAT), which can be applied in certain circumstances where an individual is disposing of some or all of their ‘qualifying assets‘ within their business.

There are also qualifying conditions and thresholds within retirement relief. 

If retirement relief is an area of interest, it may be worth checking out our blog where we have covered the topic in more detail.

Entrepreneurial relief works similar to retirement relief in that in can be applied to offset a Capital Gains Tax bill.

If eligible for entrepreneurial relief, your Capital Gains Tax bill may be reduced by 10%.It is worth noting that this relief only applies to the first €1,000,000 of gains.

Retirement will involve different things for different people. Some many plan to holiday frequently while others will enjoy a more settled life.

Either way, it is important you understand the lifestyle you would like and how much it may cost to sustain. Thankfully, we are living longer healthier lives than ever before, but this also means planning has increased in importance.

Budgeting is an excellent way to become more efficient with your money. By monitoring income versus expenditure, you can gain a better understanding of your spending habits.

For this reason we created a free budget calculator.

This interactive budget allows you to track your spending and income over a 12 month period. It is also broken into subcategories to simplify the calculations. Lastly, the information is displayed in chart format on the ‘summary’ tab.

In retirement you may pass less tax but you likely will not be completely exempt.

Once you pass age 65, you can earn up to €18,000 tax-free as a single person, or €36,000 as a married couple/civil partnership.

Once you turn 66, you will stop paying PRSI which is currently at a rate of 4%.

From a pensions point of view, your tax liability will depend on your arrangement. In general, income arising from pensions in taxable.

For example, if you have an Approved Retirement Fund (ARF), withdrawals are treated as income and taxed under the PAYE system. This means you will be liable to income tax, PRSI and Universal Social Charge (USC).

If you need to retire due to ill health, you may be able to access your benefits early. However, your ability to access your benefits early will likely depend on the specific scheme rules.

Whether you are part of an occupational pension scheme or the owner of a personal pension, it may be worth contacting your broker or pension provider for more information.

These circumstances are judged on a case by case basis.

We hope this in-depth article has provided you with useful information and clarity around early retirement in Ireland and what it means for you.

As we touched on above, there are many variables when it comes to financial planning and there is no one-size-fits-all approach.

What you may feel is a considerable retirement fund may be trivial in the eyes of the next person.

We also all have different lifestyles and spending habits. Having €400,000 in your pension might last one individual a lifetime whereas the next person may require a larger fund.

If you are considering early retirement, there is no substitute for talking with a qualified professional.  Somebody who has experience guiding clients through this process and planning their retirement.

If you would like to discuss potential options, you can contact our team at the below.

We would be happy to assist and answer any questions you may have.