This is our second post on pensions - here’s the first on How Pensions Work. This one outlines the four main categories of pension in Ireland and the most important facts about each.
State Pension
Often referred to as the old-age-pension, there are two variants. If you’ve made enough PSRI contributions (i.e. ‘stamps’) during your career you’ll quality for the Contributory State Pension. Paid from age 66, it’s €248.30 per week (€12,911 per year) and is not means-tested so you’ll get it no matter what other income you have.
If you’ve never worked or don’t have enough PSRI contributions you’ll get the Non-Contributory State Pension. This is also paid from age 66, but is a little less (max €237 per week / €12,324 per year) and is means tested so the amount you’ll get may be reduced if you have other income.
Public Sector Pension
Public sector employees quality for a pension with their job. It’s based on salary and years of service. The calculations are complex (stay tuned for a future post) but the max is usually 50% of salary after 40 years, though it’s been made less favourable since 2013. That 50% figure can include the State Pension so don’t count on that as an extra! Public sector pensions are funded on a pay-as-you-go basis from taxes collected annually, similar to the State pension, so there is no ‘fund’ built up in the background to pay them.
Occupational Pension
These are pension schemes offered by private sector employers. Almost everything about these can vary - their terms and conditions, how ‘good’ they are, who funds them (employer, employee, or both), and even whether they expect to have enough to pay their future retirees. The terms ‘defined benefit’ or ‘defined contribution’ are relevant here - these explain who bears the risk if there isn’t enough to pay future pensions. It’s sensible to maximise your contributions (especially if your employer matches them) since the minimum pension likely under many of these schemes can be quite low.
Private Pension
These relate to pension schemes set up and within the control of an individual. There are many different types (subject of a future post), but also many providers who can help to set up and manage them. Most people start private pensions to supplement the retirement income they expect from any of 1-3 above. This is a good idea for most people, even if you think your existing pension will be enough. There are big tax breaks available also, so it’s worth taking advantage of these where possible.
Thats a very high-level summary, and while the ‘devil is in the detail’, your financial security in retirement will probably depend on one or more of the above. Here’s a few other things you should know:
You will probably need a lot more pension savings than you think, even if you’re already in a scheme. Here’s why.
For many public sector employees, their public sector pension will include the State Pension. This is often an extra for those with occupational or private pensions.
It seems inevitable that the retirement age will be raised further. If you’re keen to have more flexibility around your retirement timing, this is the main reason to increase your pension savings rate now.
Finally, don’t forget the tax breaks - this can be very significant and is often overlooked by many. Read here for an explanation.
This post continues our series exploring pensions - subscribe if interested, share with family or friends who may benefit, and comment email or tweet with any feedback - all is welcome
Hi, thanks for this and other articles too. My employer offers PRSAs instead of pensions. Would you be able to tell us more about those? Are they the same as pensions?
Great article, thanks! It clears many of my questions. It seems somewhat unfair that somebody that has never paid PSRI is getting a close state pension as someone who has contributed with €50.000+ salary.
Since I'm not a public worker and my employer doesn't contribute to a pension, it seems that I need to set one up myself. But what if I leave Ireland before I retire? I mean, what if I move to Canada in 7 years from now, will my money get stuck in an account? Or will I be able to withdraw it?