Why save for retirement?

A pension is basically a long term investment plan, where you save regular amounts or lump sums (called ‘contributions’) to build up a retirement fund. There are a number of benefits to using a pension plan:

1. Tax relief

If you are earning an income, you will get tax relief on your contributions to your pension that you would not get from other forms of savings. However, you will pay tax on your regular income from your pension plan when you retire.

For every €100 of your income that you invest in a pension, the real cost to you after tax relief is less. It costs you:

€80 if you pay tax at 20%
€59 if you pay tax at the top rate of 41%

If you are an employee, the real cost will be even lower as you can also get some tax relief on the income levy, PRSI (pay-related social insurance) and health levy payments. The maximum in earnings that you can take into account for pension tax relief is subject to Revenue limits. If you are a member of an employer pension plan, you don't have to pay tax on any contributions your employer makes.

The percentage of your income you can get tax relief on for pension purposes depends on your age. It increases as you get older.

Your age	% of your income you can get tax relief on
Under 30	15%
30 to 39	20%
40 to 49	25%
50 to 54	30%
55 to 59	35%
60 or over	40%

2. Tax-free investment growth

You don't have to pay tax on the growth of your pension fund.

3. Tax-free cash when you retire

When you retire you can take part of your pension fund as a tax-free lump sum. The amount you can take depends on the type of pension plan you have. It is important to remember that your regular pension income will be subject to income tax.