How to Start a Pension

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How to Start a Pension?

Step 1: Understanding how pensions work

Step 2: Meeting with a financial advisor

Step 3: Assessing the different pension options available

Step 4: Fact-finding process

Step 5: Risk assessment

Step 6: Select an investment strategy  that is suitable to your needs

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It is also important that you take time to review your pension annually alongside your financial advisor.

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We help clients across Ireland start their pension.

What types of pensions can you start?

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Personal Retirement Savings Account (PRSA)

This is a personally owned pension that can be taken out regardless of employment status.

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Self-Employed Pensions

Our clients include both self-employed and sole traders assessing their options.

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Company Pension Schemes

We help small-medium size businesses set up or review their pension schemes.

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Executive Pensions

Are you a director of a company and looking to start a pension?

Benefits of Starting a Pension

Tax Relief on Contributions

As you contribute to a pension, the net cost or ‘real’ cost is not as high as you think. The government provides tax relief at your highest rate to encourage us to save.

If you would like to see real life examples of how tax relief works, feel free to check out our blog.

Tax Free Growth

Another advantage is that once in a pension, your investment will grow tax-free. It will accumulate over time free of income tax, capital gains tax, or DIRT.

Tax-Free Lump Sum

At retirement, you will often be eligible to take a percentage of your fund tax-free. The amount you take will be dependent on the type of arrangement you have and if you have taken lump sums from other pensions.

Most people will be eligible to take 25% tax-free as a lump sum. However, there is a limit of €200,000 that can be taken tax-free

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Starting a pension at 30, 40 & 50

Starting a pension at 30

Starting a pension at 30 will give you approximately 37 years to save for retirement. Plenty of time to enjoy tax-free growth and tax relief on your contributions.

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Starting a pension at 40

Starting a pension at 40 means you are slightly closer to retirement. Although you can contribute up to 25% of your salary subject to conditions.

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Starting a pension at 50

It is never too late to start a pension. You will have many years in retirement and taking advantage of pension benefits will help you enjoy retirement.

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Irish Pension Statistics

Pensions are becoming more and more popular in Ireland. An increase year on year means that over 60% of workers in Ireland now have some sort of pension arrangement.
This figure is expected to rise again post-pandemic with more people realising the benefits pensions offer and the importance of saving for the future.

Why Choose Pension Support Line?

  • A non-jargon approach.
  • Experienced Advisors
  • Proven track record
  • Commitment to providing a quality service
We know the world of pensions can sometimes be overwhelming. This is why we ditch the jargon and prefer to keep things simple.

How do I pay my pension contributions?

Your pension contributions are calculated on your earnings. You will receive income tax relief against your earnings from employment for your pension contributions.

Depending on your age, you will fall into a specific bracket that has a threshold limit that is directly correlated to age. The maximum earnings that can be considered for tax relief are €115,000 per year.

Below is a breakdown of the thresholds and how they change depending on age.

Age Percentage limit
Under 30 15%
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60 or over 40%

(Revenue.ie)

What happens if I die before I retire?

Hopefully, by the time you reach retirement, your pension will likely be one of your largest assets. Therefore, it is only natural to wonder what will happen to it should you pass.

With the average pension in Ireland hovering at close to €100,000, how it is inherited will be important.

Rules around what happens to your pension if you die will depend on the type of scheme and its rules. However, unless you take the first step and start a pension, none of the above will be relevant.

Pension Tax Relief Benefits

If you are on the tax rate of 20% and invest €100 per month you will receive tax relief of 20% by Revenue.

tax relief on pension contributions calcs

If you are on the higher tax rate 40% and invest €100 per month you will receive tax relief of 40% by Revenue.

tax relief on pension contributions calcs 2

Pension Calculation Example

Example 1

Based on the assumptions as per ‘pension authority calculator’, you are not expected to meet your target pension of €17,500 p.a. in retirement. You will need to your total annual contributions to 9.8% of your Salary so you can meet your target pension.

There is always the option to reduce your target pension in retirement or retiring at a later age. To put a long-term plan in place it is always a good idea to seek advice from a qualified advisor, who can explain the process, targets etc in simple English.

Always bare in mind, the longer you leave it to start a pension, the more you will pay.

An example of results as per the pension calculator. All results are received from the Pension Authority.

Please find the source below and assess your options or goals.

Important note!

Your accumulated retirement fund is converted to an annual pension using long-term average conversion rate as per the ‘pension authority calculator’. In addition, the actual conversion rate at retirement may change or differ from the conversion rate above!

All figures are of December 31st 2020.

Your Age 35
Your current annual gross salary €35,000
Your intended retirement age: 68
Target Pension as a % of pre-retirement salary €17,500

 

How your Annual Target Pension is Made Up Your Personal Pension From 68
Projected Pension from your Current Pension Arrangement

€ 0 p.a.

 

Current State Pension €12,912 p.a.
Projected Retirement Pension €12,912 p.a.
Projected Pension Shortfall to be funded €4,588 p.a.

Total Target Pension in retirement

 

€17,500
The Age You Start Your Contributions Age 35 Age 40
Yearly as % of Salary 9.8% p.a. 12% p.a.
Yearly Contributions €3,430 p.a. €4,200 p.a.
Gross per Month €286 €350
Less Tax Reliefs (€57)  (€70)
Net Contributions Per Month €229 €280

Source: Pensions Authority

The Age You Start Your Contributions Age 45 Age 50
Yearly as % of Salary 15.2% p.a.. 20.3% p.a.
Yearly Contributions €5,320 p.a. €7,105 p.a.
Gross per Month €443 €592
Less Tax Reliefs (€89) (€118)
Net Contributions Per Month €355 €474

Source: Pensions Authority

How long does it take to start a pension?

Less time than ever before. As a result of Covid-19 and progression in technology, you can do everything over Zoom or Microsoft Teams.

Depending on how quickly you meet and complete paperwork, you could set your pension up within a week. Although it is better to allow a timeline of 2-4 weeks. Plus, it is not something to be rushed.

A consultation with a Qualified Financial Advisor is the first step. Ensure a holistic view is taken of your situation and decide the best course of action.

The pension world is full of acronyms and jargon so ensure you speak to someone who can break everything down.

When it comes to pensions there is no one-size-fits-all approach. Each of us has a different set of needs and circumstances.

Planning to rely on the State Pension?

The current state pension in Ireland is €248 per week which is just over €35 per day. That is without accounting for the fact it is a system with €359 billion of liabilities.

Therefore, it may not be a viable long-term option. Should you choose to rely solely on the State Pension, you will likely huge hit in income levels.

Average Wage  €44,148 (CSO – 2021)
State Pension €12,900
Deficit €31,248
LEARN MORE ABOUT THE STATE PENSION
Irish state pension

Other related topics we have covered:

How to start a pension in 2021

Figuring out how to start a pension can sometimes be the most difficult aspect. Yet, the more time you spend pondering the more compound interest you say goodbye to.

Learn More

Pension contributions in Ireland

Pension contributions give you the opportunity to not only save for the future but also to do so in a tax-efficient way. None of us enjoy paying tax so this is a match made in heaven.

Learn More

Tax Relief on Pension Contributions

We offer a no-obligation complimentary consultation. We help clients with various types of pensions review their options.

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