Understanding Irish State Pensions: A Beginners’ Guide

Zurich has been operating in the pension industry in Ireland for over 40 years. The Investment and Pension Provider Excellence Awards from Brokers Ireland, 2023₁ are just some of the many industry awards we have won during this period.

In this article, we are going to cover:  

1. What is the State pension? 
2. What is the contributory State pension? 
3. What is the non-contributory State pension? 
4. Is the State pension enough for retirement? 
5. What are the benefits of a personal pension?

The State pension is a payment that the government provides to eligible individuals who have reached the retirement age. 

• The contributory State pension  
• The non-contributory State pension  

For more information on all the State pensions available in Ireland, visit gov.ie.  

You may have also heard of the auto enrolment and might be wondering how it fits within the pensions system. We’ll cover that in a few paragraphs below. 

In the next couple of sections, we are going to explain how to quality for the two types of State pensions.  

The State pension is a contributory pension that is paid to people from the age of 66 who have enough Irish social insurance contributions to qualify. The contributory State pension is not means-tested, and you may have other income such as a personal or occupational pension and still receive a contributory pension. Like all other income, this pension is taxed, however you are unlikely to pay tax if it is your only source of income. 

Today the State Contributory Pension is worth €289.30 a week₃. While the State pension is helpful, will it be enough to give you a comfortable life in retirement?

After working hard for most of your life, when you reach retirement, wouldn't it be nice to have the money you need to maintain your standard of living in retirement? You need to consider whether you could survive on the State pension alone, and what will your finances look like in retirement? 

You can learn more about the retirement age in Ireland and the changes introduced in 2024. 

In order to help provide for your retirement, starting a private personal pension is one of the smartest financial decisions you can make. When choosing a pension, having all the information you need is key. Sound advice is invaluable, so it's a good idea to seek advice from a financial advisor. A financial advisor can guide you through the process and help you select the right pension plan for your circumstances. You can find a local financial advisor near you with the Zurich Advisor Finder. Alternatively, our Financial Planning Team can provide you with more information about Zurich's pension plans and options.

To qualify for the State pension, you must have started paying social insurance before reaching 56 years of age. You must have paid at least 520 full rate social insurance contributions and have a yearly average of at least 48 paid and/or credited full rate contributions from the year you started insurable employment until you reach 66 years of age₃.   

If you don't have the above, then you must have a yearly average of at least 10 paid and/or credited full rate contributions from the year you started insurable employment to the end of the contribution year before you reach the age of 66₃. 

From January 2024, the Government announced changes to the contributory State pension making it more flexible. You’ll be able to drawdown your pension at any age between 66 and 70₄.

The new changes mean that those who wish to claim their contributory State pension at 66 can still do so. It also allows those eligible to defer claiming their contributory state pension up until they turn 70, and instead claim an adjusted higher payment rate.

These changes aim to provide people with more choices and potentially increase their State pension payments when they retire. It also means that for people who started working later in life, they will now be able to work longer in order to qualify for the State pension.

When the time comes to apply for the State pension, you can find more information and the steps you need to take at gov.ie. 

A non-contributory pension is also a State pension but it differs to a contributory pension in that it is residency based and is a means-tested payment for people aged 66 or over who do not qualify for a contributory State pension based on their social insurance payment history. 

Means-tested means that the Department of Social Protection examines the cash income you have (including your spouse, civil partner or cohabitant) and the value of your capital for example savings, investments, shares or properties you have (excluding your own home). If as a result of this means test, your total income is below a certain amount, you might be eligible for a non-contributory State pension. Learn more about how the means tests are carried out. 

You can find more information on applying for a non-contributory State pension at gov.ie. 

Depending on the lifestyle you want in retirement, the State pension might not be enough. If you consider that currently the State pension amounts to just over €15,000 per annum₃, and if this is your only source of income, it represents a large income drop for most people and might not allow you to have the type of life you would like when you retire. Equally, initiatives like auto enrolment may indicate that the level of income at retirement provided by a pension may not be enough.

According to Zurich research, which examined the attitudes of adults towards paying into a pension, 65% of all workers are concerned (from fairly to extremely) about having enough money for retirement. Of those surveyed, €28,257 is the average amount expected to need to lead a normal life after retirement₅. As you can see from the research there is a significant shortfall for those expecting to live off the State pension alone₅.

The Zurich pension calculator can help you with your retirement planning and will show you how much you need to put away to have the life you want when you retire. This calculator also takes into account the State pension amount so will give you a good idea of the pension savings you will need to make to have the income you desire in retirement.  

Saving a little today can help you live the life you will want to have when you retire. That’s just one of the great benefits of a private pension. As mentioned, the State pension might not be enough for you to enjoy the lifestyle you have dreamed of when you retire. Starting a pension can give you greater ownership of your future, and putting a little aside today, could help you live an active and productive retirement tomorrow. 

Tax relief is by far the greatest advantage of saving in a pension, and in contrast to a savings account, contributions to a pension plan qualify for tax relief. Pensions are the only investment that will give tax relief on contributions at the persons marginal rate of income tax (20% or 40%). For example, if you’re on the standard 20% rate of income tax, every €100 you contribute to your pension would only cost you €80 after tax relief. The higher the rate of income tax, the more you get back.

Pensions are also invested, allowing for compounding tax-free investment growth over time, and the potential for the value to increase as time progresses. The younger you are, the higher the return at retirement due to compounding. Starting early also means you don’t have to contribute as much later in life, compared to those who start later and have to play catch up. So, the sooner you start, the more you put into your pension over time. And the more your investment compounds, the more investment growth you could potentially get throughout life.

If you are thinking of starting a private pension or have just started and are looking for more information, this article answers many of the questions beginners usually have. When choosing a pension, having all the information you need is key. At Zurich we're here to help with lots of information, tools and options to help you select one that's right for you.

With so many different plans and options available we all need some help making the decision that's right for us, so it pays to get expert pension advice.