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.
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:
You do not have to pay PRSI on annuity payments (guaranteed income for life). However, 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
The marketing material is not intended to provide advice and is provided for general information purposes only.
The particular tax treatment contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at March 2020. Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in
the future. You should take such independent tax advice as you deem appropriate.