A key
attraction of pension funding is the tax relief for pensions – both on
contributions and within the fund – while you are saving for retirement.
However, there
are some taxes that have to be paid on pension income you receive once you have
retired.
This article is intended to explain in the simplest terms possible how pensions are taxed at retirement, to help you make sure your pension is taxed correctly and that you are benefiting from any tax credits you may have.
INCOME TAX
Retirement
income is treated like normal income so income tax must be paid on it.
Retirement income includes any Guaranteed income for life (also called
Annuities); and withdrawals made from an Approved Retirement Fund (ARF).
You are entitled to tax credits depending on your specific personal circumstances. Tax credits are used to reduce the tax liability on your income, including your pension income.
To ensure your pension is taxed correctly you can contact the Revenue Commissioners and they can confirm the correct rate of tax that should be paid on your pension income:
- Contact your local Revenue office.
- Give them your PPS Number.
- Ask them to allocate any unused tax credits or cut-off point you have to
your ARF or Annuity provider.
- Tell them what tax reference number you want these credits allocated to. You can get the tax reference number from your ARF or Annuity provider. The number will be specific to the provider and the type of pension benefit you have.
PRSI
You do not have
to pay PRSI on annuity payments (guaranteed income for life). However, AMRFs,
ARFs, Vested PRSAs, trivial pension and taxable cash payments are liable to
PRSI Class S (currently 4%) until age 66.
UNIVERSAL SOCIAL CHARGE
The Universal
Social Charge (USC) is calculated based on the full withdrawal amount.
Depending on your personal circumstances, individual USC rates may apply. These
are provided by Revenue and are shown on your tax certificate. In the absence
of a valid tax certificate, USC will be charged at the higher rate (currently
8%). Therefore, it is important to also discuss this matter with your local
Revenue office.
If you have any questions about your ARF contact Harvest; we will be well placed to assist.
Source of Content; Irish Life
What is a Self Administered ARF
