Pension Funds Online

Pension Systems Design

Ireland's pension system consists of a pay-as-you-go financed public pension pillar supplemented by a voluntary second pillar scheme and private pension plans.

Ireland's National Pensions Reserve Fund (NPRF), established to part-finance the cost of social welfare and public service pensions from 2025 onwards, saw €10bn of its assets drained away by the Government in April of 2011, in order to support another recapitalisation of the country's struggling banks.

Public Pensions

The public pension pillar comprises both a contributory and a non-contributory element. The latter is a means-tested pension, which is paid to individuals without adequate means at the age of 66.

The old-age contributory pension system is financed on a pay-as-you basis and provides flat-rate benefits depending on the contribution period. All employees in the private and public sector as well as the self-employed are insured under the system. Contributions are unequally shared between the employer and employee; the contribution rate for wage earners amounts to 4% of earnings up to a ceiling of EUR 46,600.

The statutory retirement age is 66 and early retirement is not possible under current conditions.

Occupational Pensions

Almost all major employers operate a pension scheme and it is estimated that about 50% of the workforce can expect to receive occupational retirement benefits in addition to their basic state pension.

According to the Irish Pensions Board, there were 586,488 members in defined benefit (DB) plans at the end of 2009 and 266,909 members in defined contribution (DC) plans.

The following funding vehicles are legally recognised and attract tax advantages:

-  Qualified pension funds established under trust law

-  Retirement Annuity Contracts (RACs), which are insurance contracts

- Personal Retirement Savings Accounts (PRSAs): PRSAs are low-cost pension products with fixed charges based on the defined contribution approach

1. Pension funds

Pension funds are normally established under trust. The trustee usually appoints an investment manager and custodian. Pension schemes have to be registered with the Pensions Board.

Employer and employee contributions receive tax relief up to 15% of salary at age 30 and younger. The maximum contribution rate that attracts tax relief increase with age and adds up to 40% for those aged 60 and over. Investment income received by the pension fund is also tax-free. Income tax becomes payable upon the time the pension is paid.

As in the UK, Irish pension funds have traditionally mostly invested in equity with the highest equity investment ratio throughout Europe.

2. Personal Retirement Savings Accounts (PRSA)

Personal Retirement Savings Accounts (PRSA) are DC plans offered by investment managers, insurance companies and credit institutions.

Since September 2003, employers who do not provide access to an occupational pension scheme are obliged to allow access to a group PRSA arrangement. PRSAs generally offer several investment options, of which one must be a default investment option.

Contributions receive tax relief up to 15% of salary at age 30. The maximum contribution rate that attracts tax relief increases with age and adds up to 40% for those aged 60 and over.

Unused tax relief can be carried forward to subsequent years. The transfer is subject to the annual limits.

3. Retirement Annuity Contracts

Retirement Annuity Contracts (RAC) are insurance contracts approved by the Revenue Commissioners. RACs are DC schemes, which offer different investment options. RACs can only be taken out by individuals without access to an occupational pension plan.

Additional sources:

The Organisation for Economic Co-operation and Development (OECD) - http://www.oecd.org