Average Pension in Ireland

What is the average pension pot in Ireland? How much should I have in my pension savings to retire comfortably? What will my income be in retirement?

The CSO reports that 66% of workers aged 20-69 have some form of pension coverage outside of the state pension. This has increased from 65% of workers in 2020 and 60% of workers in 2019. This suggests that awareness of retirement planning is increasing among the Irish population.

The average pension in Ireland is €111,000 in 2024.

This has increased in recent years but still falls short of being adequate to provide the 50% of your final salary advised by financial advisers as an optimal retirement income.

Types of pension in Ireland in 2024

There are three main types of pension in Ireland. These types of pension do not take into account other forms of retirement funding like assets eg. property or savings.

State pension

There are two types of state pension in Ireland at present. There is the state contributory pension an the state non contributory pension.

In Ireland you can qualify for a state pension from the age of 66 but recent changes mean that you can defer claiming a state contributory pension until the age of 70 if you need to accrue more contributions or to qualify for a higher pension payment on retirement.

State pension in ireland

The state non-contributory pension

The state non-contributory pension is a means tested payment for Irish citizens which means that if you have income from any employment or other sources during retirement, including the value of assets other than your own home, they will be taken into account in calculating the amount you receive each week.

State contributory pension

The state contributory pension is not means tested which means that income from other sources will not affect your pension payment.

You will need to have made a minimum of 520 (10 years) PRSI contributions in order to qualify for a state contributory pension. The maximum rate of contributions is 2080 (40 years) which will qualify you for the maximum rate of payment on retirement.

Recent changes to the pension system have meant that time spent outside of the paid workforce as a home carer (up to 20 years) can be included in calculating your pension entitlement.

Currently, in February 2024, the maximum rate of state contributory pension for a single person is €277.30. The CSO estimates that 57% of workers without another form of pension provision expect a state pension to be their primary source of income in retirement.

Occupational Pension

An occupational pension scheme is one which is provided by your employer on retirement.

The pension is usually paid from a pension fund that has been contributed to by either the employee or the employer and the employee.

Occupational pensions may be contributory, where you and your employer contribute to the pension fund, or non-contributory where your employer alone contributes to the pension fund.

State employees’ pensions are not provided by a fund, but paid for from current government funds.

Occupational Pensions

Defined benefit pension and defined contribution pension

With occupational pensions there is a further distinction between a defined benefit occupational pension and a defined contribution occupational pension.

With a defined benefit scheme, the employee will know in advance what benefit they will receive on retirement. It may be linked to length of service or a percentage of final salary, for example. Public service pensions tend to be defined benefit pensions.

With a defined contribution scheme, the benefit you receive is linked to the contributions that you make. This can leave an individual employee’s pension more vulnerable as it is linked to the performance of the pension fund and interest rates and market performance more generally.

A defined contribution scheme is more common. The CSO has estimated that defined benefit occupational pensions make up 32% of occupational pensions, whereas defined contribution schemes make up 32% of occupational pensions.

A new auto-enrolment pension scheme is to be introduced in Ireland later in 2024 administered by a Central Processing Authority which will see employees automatically enrolled in the pension scheme with their contributions matched by employers and topped up by the State.

The auto enrolment pension is intended to ensure that more employees save for retirement and to improve the pension coverage of the working population.

Personal Pension

A personal or private pension is a pension plan, usually offered by a life insurer or investment company, where an individual contributes to their own pension and which is managed by the insurance company or investment company.

Personal pension plans are usually chosen where someone doesn’t have an occupational pension or by those who are self employed.

A personal pension can be independent of employment and may be contributed to by a homemaker or someone who chooses to make pension provision independent of their employment.

A Retirement Annuity Contract (RAC) is type of defined contribution pension where money you save will be used to pay your pension when you retire.

A Personal Retirement Saving Account (PRSA) is, essentially, a type of pension savings investment account that allows someone to save for retirement.

With a personal pension, you can cash out your pension at 50 in the form of a tax free lump sum (up to €200,000).

Private pensions benefit from tax relief at the marginal rate of income tax, with the percentage of your salary you can save increasing with age. There is a maximum salary cap of €115,000 for income tax relief. Making contributions to a private pension are a tax efficient way to save for retirement.

personal pensions

How much should I aim to have in my pension pot?

This amount is dependent on your final salary, as well as your aspirations or expectations around retirement. The type of expenses you expect to face, as well as the type of lifestyle you wish to enjoy will affect how much your pension pot should be.

There is wide disparity between the average pension in Ireland, €111,000, and the amount that respondents felt was desirable for financial security in retirement.

66% of respondents to the survey, when asked how much they would need to fund their retirement, chose either €200,000 or €500,000. The average respondents would like to have €433,000. This is obviously considerably higher than the current average.

The ideal amount to have as a pension pot increased with age.

At 30, you should have 1x your salary in your pension pot.

At 40, you should have 3x your salary.

At 50, you should have 5x your salary.

At 60, you should have 8x your salary.

At 67, you should have 10 x your salary.

Income tax and pensions

In Ireland contributions to a private or occupational pension benefit from tax relief at the marginal rate of income tax that you pay.

Irish contribution limits for income tax relief for pension contributions bear out the idea that your pension contributions should increase as you age as the percentage of your salary that you can contribute with tax relief increases with age.

Age Contribution Limit
<30 15%
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60+ 40%

On retirement, you can receive a tax free lump sum of up to €200,000.

Your pension payments are subject to income tax. However, many pensions are below the level of income that is subject to income tax.

Factors that affect how much your pension will be.

There are several factors which will affect how much your pension pot will be.

Factors that affect your pension

If you have a personal pension or a defined contribution occupational pension, the performance of the pension fund will affect how much you will receive as pension. This will be affected by market factors and interest rates, as well as the investment performance of the fund.

If you have a defined benefit pension, then your pension amount will be a fixed amount based on your length of service or your salary.

IBM, a large employer in the USA, recently reopened their defined benefit pension scheme to new entrants, having switched to a defined contribution scheme in the 1980’s.

It was found that defined contribution pension schemes were putting too much onus on employees to contribute to and manage their pension funds. The professional management of defined benefit pension funds, as well as higher interest rates, meant that these funds were in surplus and could be reopened to new entrants. This is seen as an incentive to recruit and retain employees.

This change to defined benefit pensions may become more mainstream with other private sector employers and industries. State pensions tend to be defined benefit type pensions.

Obviously your income will affect your capacity to make pension contributions. This, in turn, will have an impact on your pension when it comes to retirement.

Your income may also be affected by your age of entry into the workforce, whether there have been gaps in your employment, and unfortunately, your gender.

Time spent outside the paid workforce, such as time where you were out of work or unable to work will affect your earnings, and also your ability to contribute a private or occupational pension.

Your gender may also affect your pension, as women are more likely to spend time outside of paid work caring for family and still tend to earn less than men.

This is reflected in recent changes to the sate contributory pension in Ireland. Since January 2024, the way pension entitlements are calculated has changed to allow for up to 20 years spent outside of the paid workforce in caring duties.

The key advice given in relation to private pension contributions always seems to be to start saving early as your contributions made over time will, due to compound interest, accrue a generous pension pot over time.

If your goal is to make ample provision for your retirement, then making contribution throughout your working life is key.

Looking at the figures around the ideal pension pot above, having made contributions before the age of 40 and increasing the contributions that you make as you age means that you will have a much higher amount in your pension pot.

KPMG recently called on the government to increase the allowable pension contributions, to increase the earnings cap of €115,000, and also increase standard fund threshold and tax free lump sum. This will encourage individuals to contribute more and to benefit more from making generous provision for their retirement.

Inflation will significantly impact the value of your pension pot. The current high levels of inflation and cost of living crisis has meant that a higher income is needed in retirement to meet essential outgoings.

The Irish government has increased the weekly state pensions in recent years to reflect higher costs of living. However, it has stopped short of meeting its aim of benchmarking the state pension to average earnings and inflation.

Personal and occupational pensions can be subject to the effects of inflation also as the value of funds may decrease in real terms over time due to inflation.

The Irish government raised the age of entitlement to a state pension from 65 to 66 in 2014. This was partly intended to reflect an ageing population and the pressures that this may place on the pension system.

Life expectancy will affect your pension as, if you live longer your retirement will also be longer and you will need sufficient pension savings to provide you with a comfortable lifestyle when you are retired especially if you intend your retirement to be a long period.

You can offset the impact of longevity by either increasing the savings you make before retirement or by retiring later in life or a combination of both.

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