Gross v Net Income Replacement in Retirement.

Tax Benefits for the Over 65s

When a client hits age 65, and later when they pick up the State Pension, a number of tax reliefs and benefits kick in

  • An additional tax credit of €245 per person – for a married couple, this is an additional €490 tax credit.
  • Income tax exemption if total income (including the State Pension) is less than €18,000 pa for a single person or €36,000 pa for a married couple. Even if the client’s income goes over this figure, there is a marginal relief on income up to double the limit, which can reduce the client’s income tax bill.
  • No USC on the State Pension.
  • A reduced rate of USC of 2% for the over 70s whose income (other than the State Pension) is less than €60,000 pa.
  • No PRSI on the State Pension, private pensions and annuities. PRSI applies to ARF and AMRF withdrawals, but only up to age 66 currently.

Net Income Replaced

The resulting tax savings for the over 65s can be significant.

Take an example of a married couple, one income. Let’s take a 50% target gross income replacement in retirement, inclusive of the State Pension (Contributory) at the assumed maximum rate of €461.30 per week, so that the balance of retirement income will come from private pensions, annuities and or ARF/AMRF withdrawals*

Married couple, one income

Gross V Net Income

A few surprising facts emerge

  • A 50% gross income replacement in retirement is much more like 2/3rds net income replacement, when allowance is made for the various tax reliefs and benefits applying to retirees over age 65.
  • The retiree in this example only starts to pay taxes when their retirement income (inclusive of the State Pension) exceeds €36,000 pa. Up to that level of retirement income, they pay no taxes at all.
  • €60,000 income for a working couple under age 65 gives rise to a total tax liability of €14,877; however a retired couple over age 65 with €60,000 income, pays taxes of €10,140 pa (€4,700 pa less than the under 65 couple with the same income)

*No PRSI is assumed and the lower 2% USC rate is assumed to apply throughout.

The figures for a single person are broadly similar


Assuming the current taxation system retains the same, retirees over 65 will benefit from a significant reduction in tax on their income. This means that a 50% target gross income replacement in retirement will replace about 2/3 rd of their net income, the difference being the tax “bounce” which the over 65s get.

Source: Standard 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 November 2018.  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.