The Complete Guide to Pensions: How to Plan for the Retirement You Deserve

What is a pension?

A pension is a long-term savings plan with one key purpose: to provide you with income in retirement. It allows you to invest money over time, often with tax relief, and draw it down when you stop working.

Unlike a regular savings account, pensions:

• Grow tax-free

• Offer tax relief on contributions

• Are usually invested in a mix of assets to grow over time

Personal pension plans (PPP)

Personal pensions are suitable for those in non-pensionable employment and self-employed. The contract is between you and the insurance provider. Personal pensions are often also called retirement annuity contracts.

Personal retirement savings account (PRSA)

Flexible pensions designed for individuals in non-pensionable employment, self-employed or through an AVC.

Standard PRSA

• Investment options are limited

• Charges are capped

  Non-Standard PRSA

• Wider investment options

• Charges are uncapped - charges should the investment being undertaken

Should I choose standard or non-standard?

• A standard PRSA doesn’t immediately mean lower charges.

• A non-standard PRSA doesn’t immediately mean higher returns.

Receiving tailored advice is once again, absolute vital.

Employer sponsored pensions - Defined Contribution (DC) schemes

Simply put: The value depends on the money invested and how well that investment performs.

• The most common type of pension plan today.

• Costs are pooled across employees so can be cheaper then personal pensions and PRSA’s

• Investment can be shared with an Employer (ER) and Employee (EE) contributions

• Restricted to using the Companies provider and funds

• ‘Default’ or ‘Lifestyle’ strategies are common. Which calculate your age as the only investment factor.

Defined Benefit (DB) schemes

A Defined Benefit (DB) pension is a type of retirement plan that promises to pay you a set level of income when you retire. A DB scheme guarantees an income based on your salary and your length of service with your employer.

• All public service pensions are DB based

• Phased out in the private sector

• Defined benefits are not affected by investment performance

• Only liability is the insurers liquidity

Additional voluntary contributions (AVC)

Top-up contributions made in addition to your main pension plan. Used to boost your retirement fund and gain further tax relief.

• Can be done within the Employers scheme directly from payroll

• Can be done through a separate investment provider and declared to revenue through your income tax return. This is called an AVC PRSA.

• Standard pension limits apply to AVC’s, according t o your salary and age related limits.

Previous pensions - leaving service options (LSO’s):

• Leave the pension where it is - Funds remain invested as before, no further contributions can be made

• Transfer it to your new employer’s scheme (pension consolidation)

• Transfer to a personal retirement bond (also known as a buyout bond)

Pros and Cons:

• Leaving it where it is: May be fine if charges are low and performance is strong, but can be harder to manage.

• Consolidation: Convenient and simplifies admin as everything is in one place, but it can reduce your ability to invest and encash separately.

• Transfer to a buyout bond: Offers full personal control and investment flexibility, ideal if you want to manage your own strategy or separate this fund from others.

Personal retirement bond (PRB) / Buy-out bond

• Individually Owned: The bond is set up in your name—you control it, not your ex-employer.

• Choice of Provider & Investment: You choose where and how to invest the funds, often from a wide range of funds and strategies.

• No Further Contributions: It’s a once-off transfer—unlike personal pensions, you don’t continue contributing to a PRB.

Professional advice is key to help you choose the right path, considering charges, performance, access, and your long-term goals.

Why start a pension early?

The earlier you start your pension, the more powerful the effects of compound interest — growth on top of growth.

The power of compound interest. When you invest early, your money earns returns — and then those returns start earning their own returns. It’s growth multiplying over time.

• Bigger retirement fund without needing huge monthly contributions

• More time to ride out market volatility

• Maximise the available tax relief each year

• Less financial pressure as retirement approaches

Tax relief on pension contributions

How much you can invest:

Age Tax Relief Limits (as % of income)

Under 30 15%

30–39 20%

40–49 25%

50–54 30%

55–59 35%

60+ 40%

The Maximum salary revenue will consider is €115,000 per annum.

What is my rate of Tax relief?

The rate of tax relief you receive depends on your marginal rate of tax:

• If you earn below €44,000 per annum, you receive 20% tax relief

• If you earn above €44,000 per annum, you receive 40% tax relief

You can also benefit from:

• Tax-free investment growth inside the pension

• A tax-free lump sum at retirement (up to 25% of your fund, subject to limits)

How to invest your pension

Your pension isn’t just a savings plan — it’s an investment fund designed to grow your retirement income over time.

Key Investment Considerations:

• Time Horizon
  The longer your time to retirement, the more growth-oriented your investments can be (e.g., equities). As retirement approaches, this can become more conservative.

• Risk Profile 1 - 7
  Choose from risk-rated funds (e.g., cautious, balanced, adventurous) based on your comfort level and goals.

• Fund Choices
  Most providers offer:

• Equity funds (Irish, European, Global, US, etc.)

• Multi-asset diversified funds

• Property funds

• Bond funds

• ESG/Sustainable options

• Default vs Custom Strategy
  Many people are enrolled into a default fund. It’s important to review and ensure it aligns with your goals.

• Lifestyle Strategies
  These adjust your investment automatically over time, becoming more conservative as you near retirement.

Your drawdown plan matters

How you invest your pension should also reflect how you plan to withdraw income in retirement.

• If you plan to use an ARF, your money stays invested, so you need a strategy that balances income, growth, and risk.

• If you plan to buy an annuity, you may want to move your pension into more stable assets (like bonds) in the years before retirement to protect its value.

Post-retirement options: ARF vs annuity

After taking your tax-free lump sum, you need to decide what to do with the balance of your pension fund.

Approved retirement fund (ARF)

• Funds remain invested – expect market volatility

• Must withdraw 4% per year from age 61 (rising to 5% from age 71)

• Offers estate planning benefits – remaining funds can be passed to family

• Risk of "bombing out" – if returns are poor or withdrawals too high, fund may not last

• Suitable if you want flexibility and are comfortable managing investment risk

Annuity

• Provides a fixed income for life

• No volatility or bomb-out risk

• Risk lies with provider insolvency

• May include options like:

• Spouse’s pension/reversion

• Guarantee periods (e.g. 10 years)

• Index linking to protect from inflation

• Can include estate planning features, e.g. passing to a partner

• Provider will consider your health when setting income level – poor health may mean higher income

• Key consideration: how long it takes to recover your initial investment