Taxation of pensions
In general, income you get from pensions is taxable. This page explains how income from pensions is taxed.
When you retire you may get part of your pension as a lump sum. There is tax relief on lump sums at retirement.
Occupational pensions are taxable. They are subject to tax under the PAYE (Pay As You Earn) system so the process is the same as applied when you were being paid your salary. If you have both an occupational pension and a social welfare pension, you may have to pay tax on both. Read more about taxation of social welfare payments.
Occupational pensions are not subject to social insurance contributions (PRSI) but if you are aged under 66 you may have to pay PRSI on other income. Occupational pensions are subject to the Universal Social Charge (USC).
Many pensioners do not have to pay tax because the amount of their income is below the level that is taxable. There are additional tax credits for people aged over 65 and income exemption limits below which no tax is payable – read more about tax reliefs for people aged over 65.
Income from the following sources is exempt from tax:
- Wound and disability pensions and all gratuities due to wounds or disabilities granted under the Army Pensions Acts (any part that is not due to disability is taxable)
- Military gratuities and demobilisation pay given to officers of the National Forces or the Defence Forces of Ireland
- Pensions and other allowances payable to War of Independence veterans and their families
- Magdalene Laundry payments
- Foreign occupational and social security pensions that would not be taxable if the recipient lived in the country that granted them
Social welfare pensions
Social welfare pensions paid by the Department of Social Protection are liable to income tax. They are not liable to USC or PRSI.
The income tax is not deducted from your social welfare pension when it is paid to you but is paid with your other income tax.
If you are self-employed, you include your social welfare payments on your income tax return (Form 11) and pay any tax due with your annual income tax payment.
If you have income from employment or an occupational pension, you are taxed under the Pay As You Earn (PAYE) system. If you are a PAYE taxpayer, your tax credits and tax rate band are reduced to take account of the tax that is due on your social welfare pension. This means that the amount of tax due on your social welfare pension is deducted from your other income.
The technical term for this is coding in of credits. If your social welfare pension is not coded in, you have to pay tax as a self-employed person in a lump sum by 31 October each year.
If your non-pension income is not taxed on the PAYE system, for example if you have an occupational pension from abroad or you have investment income, then you are classed as a self-employed person and your tax is payable annually by 31 October each year.
Income from abroad
Income that comes from abroad is generally taxable in Ireland if you are resident in Ireland.
If you are living abroad and you receive your pension from Ireland, it may or may not be taxable under PAYE. If there is a Double Taxation Agreement, you may be exempted from Irish tax (but usually will be liable in the other country). If you are exempt from Irish tax, Revenue may tell your pension provider (for example, your former employer or the pension fund) not to deduct income tax under PAYE. If Revenue do not notify the payer of your pension, then PAYE must be deducted in the usual way.
Certain foreign pensions that would be exempt from tax if you were resident in the country paying the pension are also exempt from tax in Ireland. If you are getting a foreign pension that would be exempt from tax if you were resident in the country paying it, you may also be exempt from paying tax on it in Ireland.
Double Taxation Agreements
Double Taxation Agreements generally make a distinction between pensions payable by governments to former employees and pensions payable by private employers. However, not all agreements make this distinction and they vary in other ways so you will need to check how an agreement may affect your situation.
Most Double Taxation Agreements provide that pensions for non-governmental employees are taxed in the country of residence. So, if you are living in Ireland and getting an occupational pension from another country, you should generally receive it and then pay Irish tax on it.
The opposite is the case for pensions for former Government employees – generally they are taxable only in the country where they are paid. So, if you are a former employee of the government of the United States of America and are now living in Ireland, you pay tax on your occupational pension only in the USA. In some cases, this applies to pensions from local authorities or other political sub-divisions – again, you need to check the particular agreement.
Read more about Double Taxation Agreements.
Pay Related Social Insurance (PRSI)
If you are over 66, you are not liable to pay PRSI contributions. Find out more about social insurance in Ireland.
If you are under 66 and are employed or self-employed, you pay PRSI on your income from that employment or self-employment. You do not pay PRSI on your occupational or social welfare pension.
Universal Social Charge (USC)
All social welfare payments including pensions are exempt from the USC.
However, occupational pensions are subject to the USC. The rate you pay varies depending on your age and on whether you hold a full medical card. See the page on the Universal Social Charge for more information.