Pension Terms

Defined Benefits Pension Scheme

Usually referred to as the Rolls Royce of a pension scheme. Employer guarantees a certain % of you final salary as a pension for life. Generally will depend on the number of years service you have with the organisaiton. In the Public service this generally is 40 years but there are exceptions.

Depending on the scheme conditions a pension could be up to 66% of final salary once the service conditions are fulfilled. Generally can take up to 1.5 times you final salary as a tax free lump sum.

Can be contributory or non contributory.

Defined Contribution Pension Scheme

Here your pension is dependent on the growth of contributions ( and in some cases your employers contributions as well) make on a weekly basis (depends on how you are paid) up to when your retire.

Generally the contributions are invested in a fund and this is managed by a fund manager. Unfortunately there is no guarantee on the pension you may receive as it depends on tje level of growth of the fund and the length of time

Self Employed Scheme

2002 saw the introduction of Personal Retirement Saving Accounts (PRSA) for the self employed

Easy to establish and relatively low cost with a maximum charge of 5% on each premium paid and 1% on yearly total fund.

Generous tax relief at marginal rate

Portable – can bring it with you and flexible in regards annual contributions

Company Director’s Scheme

if you are a director of a company and own a minimum of 5% of shares, can avail of a director’s pension scheme

tax relief apply

Auto Enrolment

Auto enrolment will commence on the will 30th September 2025.

Auto-enrolment is a new pension savings scheme introduced by the Government, for certain employees who are not currently paying into a pension. They will be automatically included in the scheme but can opt out after 6 months.

Under the scheme, the employee, employer, and Government all pay a certain amount into the employee’s pension fund (Myfuturefund).Certain eligibility criteria apply.

A new public body, the National Automatic Enrolment Retirement Savings Authority, will be set up to administer the Auto-enrolment scheme. The scheme will be supervised by the Pensions Authority (see below).

At retirement what benefits should I be hoping for

• a weekly/fortnightly pension
• a tax free lump sum
• a minimum retirement age
• future pension increases (if any) during your retirement
• spouses pension if you die
• death in service benefit- a lump sum paid to your beneficiaries if you die before retirement
• other?

Additional Voluntary Contributions (AVC)

Additional voluntary contributions (AVCs) are contributions that you can make in addition to your normal contributions to an pension scheme in the public or private sector while working to increase your retirement benefits.

AVCs are only permitted if the rules of the particular pension scheme permit AVCs to be made.

If the rules do not permit AVCs to be made then a standard personal retirement savings account must be offered by your employer for the purpose of making AVCs.

Voluntary Social Insurance contributions

Paying social insurance can help you to qualify for social insurance payments, such as the State Pension (Contributory). I

If you are no longer an employee or if you are self-employed and you are no longer making compulsory PRSI contributions, you can opt to make voluntary contributions.

Voluntary contributions can help maintain your social insurance record and help you to qualify for State social insurance payments in the future. They cover long-term benefits such as pensions. They do not cover short-term benefits for illness, maternity or jobseekers.

There are three rates of voluntary contributions. The rate of voluntary contribution you pay is linked to the last PRSI contribution paid or credited by you.

If you are getting a social welfare payment or signing for credits you may get credited contributions which will also keep your social insurance record up to date.

Standard Fund Threshold (sft)

 “the Standard Fund Threshold” is a limit on how much can be in your total pension pot, from all sources and if you exceed that limit there are some taxation consequences.

Since 2014 the limit is €2 Million. This amount will increase to €2.8 million by 2029 through phased increases, and then it is proposed that it would move with wage growth. 

KPMG were of the view that the Standard Fund Threshold of €2M was likely set in 2014 to discourage defined benefit pensions above €60,000. 

In this example, the Standard Fund Threshold, two elements to consider are ;a) The capital value of the pension and 
b) The tax-free lump sum. The rationale behind this is €60,000*30 years (receiving pension) = €1.8M plus the maximum tax-free lump sum of €200K – giving a Standard Fund Threshold of €2M.

 Davy provide some interesting insights into the most effective possible ways to manoeuvre around the Standard Fund Threshold.

• Cease future pension contributions
• Avail of lump-sum tax credit
• Review asset allocation
• Access benefits early
• Phasing access to pension benefits

Deferring your State Pension. 

Since January 2024, you can choose to start claiming (draw down) your State Pension (Contributory) between the ages of 66 and 70.
Choosing a later start date is called deferring your State pension. You can defer your start date up until you turn 70.

If you were born on or after 1 January 1958, you can choose to claim the State Pension (Contributory) anytime between the ages of 66 and 70. Once you start claiming your State Pension (Contributory), you can no longer choose to defer your pension claim, even if you keep working. This is because you don’t pay PRSI once you start getting your pension.