Your State Pension

For many people in Ireland, the State Pension provides the foundation of their retirement income. There are two main types:

State Pension (Contributory)

The State Pension (Contributory) is based on your social insurance record. In general, the amount you receive depends on your PRSI contribution history. It is not means tested, so your other income or savings do not normally prevent you from receiving it if you meet the qualifying conditions. This is currently available from age 66, although there are options around the timing of claiming for some people.

State Pension (Non-Contributory)

The State Pension (Non-Contributory) is means tested. It is designed for people aged 66 or over who do not qualify for a full State Pension (Contributory), or who qualify for a reduced contributory pension. Your income and financial circumstances are taken into account when assessing entitlement. It’s worth checking what you may be entitled to rather than assuming that you won’t qualify.

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Private and Occupational Pensions

Your State Pension may not be your only source of retirement income. You may also have built up a private pension or occupational pension during your working life. These can include:

• Occupational pension schemes
• Personal pensions
• PRSAs
• Retirement Annuity Contracts (RACs)
• Approved Retirement Funds (ARFs)
• Public service pensions

The rules surrounding each type of pension can be different, particularly when you start taking benefits. Private and occupational pension income is generally taxable, and your pension provider will normally deduct tax where applicable.

If you have several pension pots from different employers, it can be worthwhile finding out exactly what you have, where it is held and what income it could provide.

Don’t forget old pensions

Changing jobs over your working life can mean that you have pensions with several different providers. Before or during retirement, make a list of:

Provider → Type of pension → Current value → Expected income → Benefits available

This simple exercise can give you a much clearer picture of your overall retirement income.

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Understanding Tax in Retirement

Tax doesn’t necessarily stop when you retire. Your tax position will depend on your circumstances and the sources and amount of income you receive.

For example, private and occupational pensions are generally subject to Income Tax and may also be subject to USC and, depending on circumstances, PRSI.

State pensions are also taxable income, although State Pension payments are not subject to USC or PRSI.

Tax after age 65

There are some important tax provisions for people aged 65 and over. For example, an Age Tax Credit is available to qualifying people aged 65 or over.

There are also income exemption limits for people aged 65 and over. If your total income is below the relevant limit, you may not have to pay Income Tax. Marginal relief may also apply in some circumstances where income is slightly above the exemption limit.

Tax rules can be complicated, particularly if you have more than one source of income, so it is worth checking your position with Revenue rather than assuming that retirement means you will either pay no tax or pay the same tax as you did while working.

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Budgeting for Retirement

One of the biggest changes in retirement is that your income may become more predictable but your spending can change considerably. You may no longer have commuting costs, work clothes or lunches to pay for. On the other hand, you may have more time to spend money on travel, hobbies, eating out and days away.

That’s why a retirement budget shouldn’t simply be about cutting costs. It should be about making your money work for the life you want to live.

Start with your essential spending

Work out what you need each month for:

• Mortgage or rent
• Electricity and heating
• Food
• Insurance
• Property costs
• Transport
• Healthcare
• Phone and internet
• Household expenses
• Other regular bills

Then look at your discretionary spending:

• Holidays
• Eating out
• Hobbies
• Entertainment
• Days out
• Gifts
• Visiting family
• New interests and activities

This gives you a much better idea of how much money you actually need to enjoy your retirement.

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Don’t Forget the Unexpected

A retirement budget should leave some room for the things you don’t expect. Cars need replacing. Houses need repairs. Appliances break down. Health and care costs can change. You may also want to help children or grandchildren from time to time.

Having an emergency fund can give you a valuable financial cushion. It can also be useful to separate your spending into:

Needs – what you have to pay for
Wants – the things that make retirement enjoyable
Unexpected – money set aside for life’s surprises

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Retirement Doesn’t Have to Mean Spending Less on Everything

One of the biggest misconceptions about retirement is that you simply need to reduce your spending. In reality, it may be more about spending differently.

You might decide that travel is a priority and cut back somewhere else. You might discover that you enjoy inexpensive hobbies just as much as expensive ones. Or you may decide that you want to spend more money in the first few years of retirement while you are active and able to travel.

There is no single “right” retirement budget. The important thing is to understand what you can comfortably afford and make conscious choices about where your money goes.

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Check What Benefits You May Be Entitled To

Your State Pension isn’t necessarily the only support available to you. Depending on your circumstances, you may be entitled to other social welfare payments, household supports, healthcare-related benefits or community supports.

Some are based on your PRSI record, while others are means tested. Your circumstances can also change over time, so it is worth reviewing your entitlements periodically.

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A Simple Retirement Money Check

If you’re approaching retirement, or have already retired, start by answering these questions:

1. What income will I have?

List your State Pension, private pensions, occupational pensions and other regular income.

2. What will my income be after tax?

Don’t rely solely on gross figures. Work out what you are likely to have available to spend.

3. What are my essential monthly expenses?

Include all the regular household bills.

4. What do I want to spend money on?

Travel, hobbies, family, entertainment and other things that make retirement enjoyable.

5. What could I need money for unexpectedly?

Think about home repairs, cars, health costs and other major expenses.

6. Am I claiming everything I’m entitled to?

Check State benefits, tax credits and other supports.

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Retirement Is About More Than Money

Money is an important part of retirement, but it shouldn’t be the whole story.

The aim isn’t necessarily to have the biggest pension or the biggest bank balance. It’s to have a realistic understanding of your finances so that you can make confident choices about how you want to spend your time and money.

Retirement may require some adjustments, particularly in the early years, but a change in income doesn’t have to mean a change for the worse.

It’s about finding the balance between what you have, what you need and what you want from the years ahead.

Helpful resources

• Revenue – Older Persons
• Revenue – Taxation of pensions
• Department of Social Protection – State Pension (Contributory)
• Department of Social Protection – State Pension (Non-Contributory)

Information on this page is intended as general information and is not financial, tax or legal advice. Pension, tax and social welfare rules can change, so check the current position with the relevant government department or a suitably qualified professional.