Private or Personal Pensions can be a way for the self-employed or people working with a company which does not have a pension scheme to take charge of their savings for retirement.

While employees of a company can relax and take part in a group pension scheme, those working for themselves, or without an occupational pension must research and handle what pension product they desire to secure their future.

Table of Content

Types of Private Pension

There are multiple different types of private pension plans available in Ireland, with different options changing depending on how the individual wishes to see their money invested, the level of return they seek, and the level of risk they are willing to accept on their investment.

Personal Retirement Savings Account (PRSA)

A Personal Retirement Savings Account (PRSA) is an easy and flexible pension option for the self-employed or people who do not have a company pension. If your employer does not offer an occupational pension scheme, they are obliged to nominate a PRSA as an alternative.

A PRSA is a type of investment account to save for retirement. This highly flexible pension scheme can be started and stopped, with regular payments or lump-sums. It also usually has no minimum required payment.

Standard PRSAs have capped charges and a limited range of investment options. There is a maximum of 1% Annual Management Charge and a minimum of 95% allocation rates. Non-Standard PRSAs have a wider range of investment funds but can come with higher charges.

PRSA

Personal Pension Plans (PPPs)

This is what is formally known as a Retirement Annuity Contract (RAC), which is a form of insurance contract approved by the Revenue. The contract or plan is usually a contract between an individual and an insurance company.

PPPs typically have a wide range of funds available for investment, with tax relief at your marginal rate available for contributions. Such schemes may have a minimum requirement on the level of contributions which must be made. 

To qualify for a PPP, you must have a source of taxable relevant earnings in the current tax year, or a previous tax year.

A Personal Pension Plan is a defined contribution pension scheme, with the value of the pension ultimately determined by the amount of contributions made to it before it matures.

Personal Pension Plans

Self-Administered Pension Schemes (SAPS)

Self-Administered Pension Schemes are a type of Revenue approved pension which is primarily used by business owners or company directors.

They offer far more flexibility and control over the investment and administration of the pension than most other schemes and are generally only used by people who have experience with investing.

Defined as a scheme which has 12 members or less, a Small Self-Administered Pension Scheme can be set up by anyone. However, they require the hiring of an independent trustee to oversee them and typically come with higher charges than other private pensions.

Self-Administered Pension Schemes (SAPS)

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What are the Benefits of a Private Pension

Having a private pension scheme is a reliable way for a self-employed person to ensure that they will have a solid income in retirement. It is also an option for people working with a company which does not offer an occupational pension scheme.

One of the chief differences between having a private pension scheme as opposed to being part of an occupational scheme is that the investor has a greater degree of control than with an occupational pension scheme. 

Depending on the type of scheme, the investor might have a broad variety of options to choose from, or even be able to directly control where their money is invested.

People who are paying into a private pension scheme are eligible for tax relief on contributions made to the scheme. Tax relief is usually determined by age-based limits and a total earnings limit.

Private pension plans tend to have the benefit of making it easier for people to change employment or careers and have less hassle with their pension. Compared with an occupational pension, a self-employed person or an employee with a PRSA will have an easier time with their pension if they change jobs.

Pension plans such as a PRSA offer far greater flexibility in terms of the contributions made compared with company pensions. The pension holder can make regular contributions or larger lump sum payments. The level of contributions appropriate is dependent on what income the pension holder wants in retirement.

Pension Contributions

Pension contributions are the payments made by an employee or self-employed person into their chosen pension scheme. Contributions may be made in regular fixed payments, deducted from paychecks, or in additional voluntary payments.

How much a person should contribute to their pension fund depends on the amount of income they wish to have in retirement. Pensions are also an extremely tax-efficient way of saving money, with income tax relief available for contributions based on age.

Are There Minimum Pension Contributions

Whether or not a private pension will have a minimum level of contributions which need to be made depends on what type of pension a person holds. 

PRSAs cannot have required minimum contributions of more than €300 per year, nor is your tax status needed to start one. This is suitable for self-employed people who do not have a guaranteed set income, as they can make contributions as and when they choose.

Personal Pension Plans will frequently come with required minimum payments which must be made regularly.

Are There Maximum Pension Contributions

Pension contributions are eligible for income tax relief, however, there is an age-based limit to how much of your earnings are eligible for income tax relief.

Age  Max Contribution Allowable
29 or younger 15% of net relevant earnings
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60+ 40%

Pension Withdrawals

Typically a person with a PRSA or Personal Pension Plan can begin drawing down their pension from the age of 60. However, if you are a PAYE employee with a PRSA and leaving service, it can be drawn down from the age of 50. 

However, there are options for people to cash in their pension early, and to begin receiving some of the benefits from the age of 50.

Depending on what pension you have, and what the rules of the scheme are, you may be able to receive a tax-free lump sum of up to 25% of the value of the pension fund. The balance of the fund must then be reinvested in an Annuity or Approved Retirement Fund (ARF).

How Old Do I Need to Be to Access My Pension in Ireland

Pension Transfers

Pension products are highly varied in Ireland, and at many points in their life, people might find themselves wanting to transfer their pension, group different pensions together, or move to a fund that they think is more advantageous.

Before transferring to a new pension, people should think carefully about any costs associated with changing pension providers and the tax implications. Consideration should be how certain they are about receiving greater benefits by moving pensions instead of staying put.

There are many reasons why someone might want to change their pension fund, such as a change in their employment status. 

An employee who is becoming self-employed might transfer an occupational pension to a PRSA. 

On retiring and taking their tax-free lump sum, someone would shift the remainder of their pension into an Approved Retirement Fund (ARF).

Someone who has had multiple pension products might want to reconcile them into a single pot.

If someone has worked abroad and wants to now transfer their pension to Ireland as they move here.

There could also be financial reasons for seeking to transfer pensions, either cutting down on costs or seeking greater returns.

Moving to a pension scheme with lower fees than are being charged by your current provider.

Looking for funds which have shown a greater return on investment to grow your pension pot quicker.

Other people might want to move to a different pension because they wish to see their money invested in different areas or to have greater control over that investment.

Transferring a pension can come with a lot of bureaucratic work, but the new pension provider should be able to assist with a lot of that.

The first piece of information which is needed is an accurate evaluation of how much the current pension scheme is worth. This will consist of a mix of documents covering benefits which have accrued in the years of investing and any charges or exit fees which may have to be paid.

After this will come the application process with the new pension provider permitting them to start the transfer. The current provider may also have some other paperwork which needs to be filled out during this.

Once that is completed it can take several weeks for the transfer to be fully completed.

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Personal Pension Review

Investing in a pension is a long-term process, carried out over decades to prepare for retirement. It would be foolish to simply start a pension while young, and then continue onwards for decades without reviewing the progress of a pension fund.

A pension review is a process whereby the pension holder will sit down with a qualified financial advisor and review all aspects of your current pension plan, and determine whether any changes need to be made.

Reviewing a pension would include looking at the past and present performance of the funds where it is currently invested. It could also include examining the fees paid under your current arrangement.

Aside from looking at past and present issues, a full pension review could look to the future to examine alternative pension opportunities which can deliver better results.

Reviewing the performance of a pension plan is an important process for helping to make the right decisions about its future. Based on the outcomes of the review, a pension holder might decide to increase the level of their contributions or move to a better-performing fund, for instance.

Pension funds can see their performance change and fall over time. Just because a fund was performing well when you first invested in it, does not mean that you should remain shackled to it if it no longer has the same level of returns.

A review of your pension might also find better options for reduced fees or other charges by switching providers or consolidating multiple pension products into one.

A pension is also supposed to be able to provide a stable income when you retire. Reviewing your pension can help you make decisions about whether or not you should increase the level of contributions you make. If small contributions are only barely keeping pace with inflation, or not delivering large enough returns, then they may need to be increased.

How often a person should have their pension reviewed depends on how hands-on they wish to be in the management of it. If someone wants to take a very active stance in the management of their fund they might review it every 12 months.

How to Start a Pension

Starting a pension is something which should be done in consultation with an experienced financial advisor to ensure that you are getting the best pension product for your needs.

When choosing between different private pension plans, a financial advisor can help you choose between a PRSA or PPP, and between different providers, based on your income and desired lifestyle on retirement.

The other big part of starting a pension is deciding how much risk you are willing to accept. The main types of pension investments are Equities, Property, Cash, and Bonds. Each of these will come with different levels of risk and projected returns. Decide how much risk you are willing to take with your pension.

How to start a pension

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