Taxation of pensions

This page explains how income you get from pensions is taxed.

When you retire you may also get part of your pension as a lump sum. If you do, 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 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 70, 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.

Exempted pensions

Income from the following sources is exempt from tax:

• Foreign occupational and social security pensions that would not be taxable if the recipient lived in the country that granted them
• Magdalene Laundry payments
• Wound and disability pensions and related gratuities 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

Social welfare pensions paid by the Department of Social Protection are liable to income tax. They are not liable to USC or PRSI.

Income tax is not deducted from your social welfare pension when it is paid to you. How you pay the tax depends on whether you are self-employed or a PAYE taxpayer.

PAYE

If you have income from employment or an occupational pension, you are taxed under the 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.

Self-employed

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.

Other non-PAYE

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 make a tax return as a self-employed person.

Income you get 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 do this, then PAYE is deducted in the usual way.

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 paid by governments to former employees and pensions that are paid by private employers. However, not all agreements make this distinction and they also vary in other ways so you will need to check the agreement to see how it may affect you.

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 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.

Read more about Double Taxation Agreements.

You pay PRSI on your income from employment or self-employment. You do not pay PRSI on your occupational or social welfare pension.

You are not liable to pay PRSI if you:

• Are aged over 70
• Were aged over 66 by 1 January 2024
• Were getting a State Pension (Contributory) by 1 January 2024

Find out more about social insurance in Ireland.

All social welfare payments, including social welfare pensions, are exempt from USC.

However, occupational pensions are subject to 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.