What You Really Need To Know About Company Pensions

There are two types of company pensions – defined benefit and defined contribution. Both reward time with the company and are based on your salary, but they are different.

Defined benefit pensions

A defined benefit pension is common for public sector jobs in Ireland. 

The figure paid at retirement is based on an employee's position on the salary scale at retirement and the number of years they have contributed to the plan. They will then receive an annual pension based on their salary and length of service.

Defined contribution pensions

This is the much more common pension plan of the two. 

With this plan you pay a fixed amount into your pension each month (typically a percentage of your salary) and often your employer will make their own fixed contribution. 

The final amount in your pension pot varies depending on how long you’ve been paying into your pension, the rate of growth your pension achieves, and how much you and your employer contribute.

If eligible, you'll get income tax relief on your contributions, though Revenue does limit this based on your age and salary. 

As defined contribution pensions are much more common, we're going to explore these in more detail. If you are a member of a defined benefit plan, you can talk to your financial broker or advisor, plan sponsor or plan trustee(s) for more information.

In a defined contribution pension plan, employees usually pay in a set portion of their salary, and this can be increased at any stage. The idea is to build up a fund to give you the amount you need to live on in retirement.

Generally, these contributions are taken directly via payroll before income tax is applied, though pension contributions are still subject to USC and PRSI. 

Income tax saving is one of the biggest benefits of pension contributions in Ireland.

Many workers in Ireland are eligible for income tax relief on the contributions they make to their occupational pension. 

Generally, the older you get, the more you can add to your pension without paying income tax. If you can afford it, it's a great investment to make the maximum contributions you can while still receiving income tax relief.

Generally, company pensions are designed to only be accessible when you retire. 

Most people retire in their mid-sixties, but you may be able to access your pension from as young as 50 in certain circumstances - usually when you're no longer working for your employer, and the pension trustees agree to an early access.

You may also be able to early retire at any time if you are in ill health and unable ever to return to work.

It’s important to remember that if you access your pension early, the funds may not be as high as they would be if you waited until the Normal Retirement Age (NRA).

Check out our guide to retirement options and learn more about when and how you can access your pension pot.

Ireland is not a cheap place so to live comfortably, you’re going to need a substantial amount in your pension pot. In fact, Numbeo, a database which calculates the cost of living for different countries, estimates that Ireland is the 13th most expensive place in the world to live.

You want your pension pot to be as healthy as possible and our budget planner can help determine how much you need to live on when you retire.