Retiring in Ireland: How to Take Your Pension Tax-Free & Choose an Income Option

When you retire in Ireland, one of the most important decisions you’ll face is how to access your pension—starting with the tax-free lump sum, followed by your choice of retirement income strategy.

Here’s what you need to know to make an informed, financially sound decision.

Your Tax-Free Lump Sum: What Can You Take?

Upon retirement, you can typically withdraw up to 25% of your pension fund as a tax-free lump sum, with some limits to keep in mind:

• Up to €200,000 is completely tax-free (lifetime limit)

• The next €300,000 is taxed at 20%

• Anything above €500,000 is taxed at your marginal rate (up to 40% + USC/PRSI)

Should You Take the Full 25%?

A good rule of thumb:
Take what you need, not just what you can.

What Happens to the Rest of Your Pension?

After taking your lump sum, you’ll need to decide how to draw an income from the remaining balance.

Your two main options in Ireland are:

1. Approved Retirement Fund (ARF)

2. Annuity (Guaranteed Pension Income)

Option 1: Approved Retirement Fund (ARF)

An ARF allows your remaining pension funds to stay invested, giving your money the chance to grow while providing flexible access.

Key Features:

• Flexible withdrawals as needed

• Growth potential through ongoing investment

• Estate planning: Remaining balance passes to your family

• Mandatory annual withdrawals:

  • 4% from age 61

  • 5% from age 71

Risks:

• Market volatility can reduce your fund value

• "Bomb-out" risk if returns are poor or withdrawals are too high

Best for:

• Those who want flexibility

• People comfortable with investment risk

• Individuals with other sources of guaranteed income

Option 2: Annuity (Guaranteed Income for Life)

An annuity uses your pension balance to buy a guaranteed income for life, regardless of how long you live.

Key Features:

• No investment risk — fixed income regardless of markets

• Peace of mind for budgeting

• Optional benefits:

  • Spouse’s pension (reversionary annuity)

  • Guaranteed payment period (e.g. 10 years)

  • Index-linking to keep up with inflation

Risks:

• Less flexibility

• Lower long-term value if you pass away early

• Inflation may erode fixed payments (unless index-linked)

• Risk of provider insolvency (low but worth considering)

Best for:

• People seeking security and stability

• Those with limited appetite for risk

• Individuals with longer life expectancy or poor investment knowledge

ARF vs Annuity: Which Is Right for You?

Your decision depends on several personal factors, including:

• Your attitude to risk

• Whether you have other guaranteed income sources

• Your health and life expectancy

• Your need for flexibility in retirement

Let Financial Health Help You Structure the Right Retirement Income

At Financial Health, we work with individuals and couples across Ireland to:

✅ Maximise tax-free lump sums
✅ Choose the best ARF or annuity structure
✅ Minimise tax liabilities
✅ Build sustainable retirement income plans