When can you access your pension in Ireland?

A pension is not an ordinary investment account.

The favourable tax treatment comes with access rules.

The age at which benefits can be taken depends on the pension type, scheme rules and circumstances.

PRSAs

The Pensions Authority and Revenue state that PRSA benefits can normally be taken from age 60.

Certain earlier access provisions can apply, including retirement from employment from age 50 in qualifying circumstances and serious ill-health provisions.

A PRSA is deemed to vest at age 75, but Revenue states that drawdowns can still occur after that point.

Occupational pension schemes

Revenue requires an occupational pension scheme to specify a normal retirement age between 60 and 70.

The most common normal retirement age is 65.

Some schemes allow early retirement, often between 50 and 60, where scheme and Revenue conditions are satisfied.

If early retirement is linked to leaving employment, the employment generally has to end.

RACs

Existing Retirement Annuity Contracts can generally provide benefits from age 60, subject to the product and Revenue rules.

The contract should specify retirement terms.

MyFutureFund

MyFutureFund has its own retirement access rules linked to State Pension age.

It should therefore not be treated as interchangeable with a PRSA solely because both are retirement savings arrangements.

Ill-health retirement

Pension rules can permit earlier access in serious ill-health circumstances.

This is not the same as simply wanting to retire early.

The scheme/provider will require evidence that the relevant conditions are met.

The retirement decision is bigger than “take 25%”

At retirement, possible options can include:

The correct combination depends on your pension type and household.

Retirement lump sum

Revenue states that a personal pension can generally provide a retirement lump sum of 25% of the fund.

Occupational pension schemes can calculate lump sums differently, including salary-and-service rules.

The amount that can be taken under the pension rules is not automatically all tax free.

Ireland applies a separate lifetime retirement-lump-sum tax framework.

Chapter 8 covers that in detail.

Annuity

An annuity converts a capital sum into an income stream.

The income can depend on:

• age;
• interest rates;
• annuity pricing;
• guarantee period;
• spouse/dependant benefits;
• escalation;
• and the amount used to buy the annuity.

The advantage is income certainty.

The trade-off is giving up access to the capital used to purchase the annuity.

Approved Retirement Fund

An ARF is a post-retirement investment vehicle.

Eligible retirement money can remain invested rather than being used immediately to buy an annuity.

You can then draw money from the ARF.

Revenue applies rules around imputed distributions, meaning a minimum notional withdrawal can be taxed even if the equivalent amount is not actually withdrawn.

ARF withdrawals are taxable income.

An ARF therefore keeps investment risk after retirement.

That can be appropriate, but it changes the job from “build a pension pot” to “manage withdrawals, tax, investment risk and longevity”.

ARF versus annuity

Neither is universally superior.

Some retirees use a combination.

Tax on pension income

Revenue treats personal and occupational pension income as taxable income under PAYE.

Income Tax and USC can apply.

PRSI can apply in some circumstances.

Do not model retirement using gross pension income only.

The relevant number for household budgeting is after-tax income.

Sequence risk at retirement

A market fall is particularly important when withdrawals begin.

Suppose two retirees earn the same average investment return over twenty years.

The one who suffers large losses early, while taking withdrawals, can end with a much smaller fund.

That is sequence-of-returns risk.

It is why retirement asset allocation should be reviewed before the first withdrawal, not after it.

Build a retirement-income map

Before taking benefits, list every expected income source:

• State Pension;
• DB pension;
• DC pension;
• PRSA;
• MyFutureFund;
• ARF;
• rental/investment income;
• spouse or partner pension;
• cash savings.

Then separate:

secure income from variable income.

The retirement strategy should be based on the household, not one pension pot in isolation.

Questions to answer before retirement

1. What is each pension’s normal retirement age?
2. What lump sum is available?
3. How much of that lump sum is actually tax free?
4. Is an annuity available?
5. Is an ARF available?
6. What investment risk remains after retirement?
7. What annual income is required?
8. What tax will apply?
9. What happens to the pension or ARF on death?
10. How does the State Pension fit into the plan?

Frequently asked questions

Can I access a PRSA at 55?

Normally PRSA benefits are available from age 60, but earlier access can apply in specified retirement or ill-health circumstances.

Can I take 25% of every pension tax free?

No. The pension rules for calculating a retirement lump sum and the tax rules for how much is tax free are separate.

What is an ARF?

An Approved Retirement Fund is a post-retirement investment vehicle that allows eligible pension assets to remain invested while withdrawals are taken.

Is an annuity better than an ARF?

They solve different problems. Annuities prioritise income certainty; ARFs prioritise flexibility and continued investment.