McNamara Wealth

Planning how you retire, not just when

The Irish pension landscape has changed considerably in recent years. For people who have built up a substantial pension, the question is no longer only how much they have saved. It is how and when they take it.

Those decisions are best made in the years before retirement, not on the day itself. Getting them right can shape the income you receive, the tax you pay and what ultimately passes to your family.

What has changed

The Standard Fund Threshold is rising. The Standard Fund Threshold (SFT) is the lifetime limit on pension benefits before an additional tax, called chargeable excess tax, applies. It stood at €2 million from 2014 to 2025. It is €2.2 million in 2026 and rises by €200,000 a year to €2.8 million by 2029, with adjustments linked to earnings growth after that. For people whose funds were approaching the old limit, this changes the planning conversation considerably.

PRSAs have become more flexible. The old rule that stopped people with more than 15 years' service from moving their company pension into a Personal Retirement Savings Account (PRSA) has been removed. When you leave the company or the scheme is wound up, your benefits can generally move into one or more PRSAs, where they can be drawn in stages. This has to happen before your benefits become payable under the scheme, which for most schemes means before its normal retirement age. Employer contributions to a PRSA can also be made without being taxed on you as a benefit-in-kind, up to 100% of your salary and other taxable pay for the year.

Benefits do not have to be taken all at once. They can be taken in stages, from different pensions at different times and alongside your other assets. Much of that flexibility has to be put in place before you take any benefits. For a company pension, it also has to happen before the scheme's normal retirement age.

For company directors and anyone approaching retirement with substantial funds, these changes open up real planning opportunities.

Taking your pension in stages

For many people, retirement is treated as a single event. The pension comes into payment, the lump sum is taken and the balance moves into an Approved Retirement Fund (ARF) or buys an annuity. An ARF is an investment fund you draw an income from. An annuity is a guaranteed income for life.

Taking your pension in stages, often called a segmented approach, works differently. Before any benefits are taken, suitable pension arrangements are divided into a number of separate segments. Each segment can then be drawn at a different time, over a number of years, as and when it is needed.

This can offer real advantages:

Income matched to need. You draw what you need when you need it, alongside your other assets and income.
Greater control over tax. Timing when each segment is drawn can help manage when tax arises and make better use of the rising SFT.
Flexibility is kept. Life rarely goes exactly to plan. A staged approach leaves room to adapt as circumstances change.
A stronger position for your family. Segments not yet drawn keep their pre-retirement status, which can mean more favourable treatment on death.

Money in an ARF also stays invested and grows free of tax, so staying invested is not the main reason to stage your benefits. The real value lies in controlling when each segment comes into payment and keeping its pre-retirement status for as long as it is useful.

There is a tax point too. From the year you turn 61, you are taxed each year on at least 4% of the value of your ARFs whether you draw it or not. This rises to 5% from the year you turn 71 and to 6% where your ARFs and similar funds total more than €2 million. Segments you have not yet drawn are not taxed this way.

There are risks and costs too. Money left undrawn stays invested and can fall in value. Holding several PRSAs and taking advice both carry charges. A company pension can only move to a PRSA before the scheme's normal retirement age and moving can mean giving up valuable scheme benefits. Tax rules can change and the death benefit advantage described below can be lost if your children's inheritance tax thresholds have already been used.

Timing and the Standard Fund Threshold

Each time a segment comes into payment, you use up a percentage of the SFT in force at that time. That percentage stays fixed. As the SFT rises, the euro value of the part you have not yet used rises with it.

Anything drawn above your remaining threshold is subject to chargeable excess tax at 40%, with income tax payable again on later withdrawals. Some of the tax paid on your retirement lump sum can be offset against that charge, so the true cost depends on the detail. For anyone whose pension is close to or above the threshold, the timing of each segment can make a real difference.

Staging your benefits does not create any extra tax-free allowance. The tax-free retirement lump sum remains limited to €200,000 across all of your pensions.

The death benefit advantage

This advantage is easy to miss.

Before benefits are taken. If you die before drawing a PRSA, the fund is paid into your estate with no income tax and passes to whoever inherits under your will. If that is your spouse or civil partner, there is no tax. If it is your children, only inheritance tax (Capital Acquisitions Tax) applies.

After benefits are taken. Once money has moved into an ARF, the rules change. A spouse or civil partner can take it into an ARF in their own name without tax, although later withdrawals are taxed as income, with the tax deducted by the ARF provider. If it passes to children aged 21 and over, the full value is taxed at 30% income tax, with no inheritance tax on top.

Who inherits	Undrawn PRSA	ARF
Spouse or civil partner	No income tax or inheritance tax	No tax on transfer into an ARF in their own name, withdrawals taxed as income
Child aged 21 and over	Inheritance tax only, above their threshold	30% income tax, no inheritance tax
Child under 21	Inheritance tax only, above their threshold	Inheritance tax only, above their threshold

Each child currently has a €400,000 lifetime threshold for gifts and inheritances from their parents before inheritance tax applies. This is not a separate pension allowance. It covers everything they receive from either parent, including property and investments.

The advantage is therefore greatest where those thresholds are still available. Where they have already been used, inheritance tax at 33% can cost more than the 30% income tax on an ARF. This is why pension planning and estate planning need to be looked at together.

To put that in context, consider €500,000 passing to a child aged 21 and over with their full threshold available. From an undrawn PRSA, inheritance tax would apply only to the €100,000 above the threshold, a bill of €33,000. From an ARF, the 30% income tax would come to €150,000.

Company pensions work differently. If you die in service, a company pension can generally pay a lump sum of up to four times your final remuneration, plus a refund of your own contributions. The balance can provide a pension or an ARF for a surviving spouse or civil partner. Where there is none, it can go to dependants instead, within Revenue limits. The pension structure your savings are held in can make a significant difference to what your family receives.

Which assets to draw first

Because an undrawn PRSA can be one of the most tax-efficient assets to pass on, the order in which you use your wealth matters.

For some people, it can make sense to fund the early years of retirement from other savings or investments and leave pension segments undrawn for longer.

There is a firm deadline. A PRSA that has not been drawn by your 75th birthday is automatically treated as if you had started taking benefits on that day, with significant consequences:

The tax-free lump sum is lost. It has to be taken by your 75th birthday.
The fund is tested against the SFT. Anything above your remaining threshold is taxed at 40%. You must also send your provider a declaration within 30 days. Without it, the provider has to treat the whole fund as over the threshold and tax all of it at 40%.
It is then treated like an ARF. At least 5% of the value is taxed as income each year whether you draw it or not. This rises to 6% if your ARFs and similar funds total more than €2 million. The favourable pre-retirement death benefit treatment no longer applies.

You can still take withdrawals after 75, taxed as income. Even so, 75 is a date to plan around well in advance, across your wider finances rather than one year at a time.

This is where pension advice meets wider planning. We advise on your pension and investments with your property, business and estate in mind, working alongside your accountant and solicitor where tax or legal advice is needed.

An illustration

Consider a company director aged 61. He has €2.4 million across a company pension and a PRSA. He also has two children aged 21 and over. His company pension scheme has a normal retirement age of 65. He plans to retire from the company in 2026 and will take €500,000 in retirement lump sums in total, whichever approach he chooses.

Taking everything at once. If he draws his full €2.4 million in 2026, he exceeds that year's €2.2 million threshold by €200,000. That creates a chargeable excess tax bill of €80,000 at 40%. The tax on his lump sum is €60,000, at 20% on the €300,000 above the €200,000 tax-free amount. His pension providers deduct both and offset the €60,000 against the €80,000, leaving €20,000 of extra tax. His entire remaining fund then sits in ARFs.

Taking it in stages. When he retires from the company in 2026, before he draws any benefits, his company pension is transferred into a number of separate PRSAs. He then draws €800,000, taking €200,000 as a tax-free lump sum and moving the remaining €600,000 into an ARF. This uses just over 36% of that year's threshold. He lives on his lump sum and the income from that first segment.

The remaining €1.6 million stays undrawn until 2029. By then the unused part of his threshold, just under 64%, is worth about €1.78 million, so no chargeable excess tax arises. When he draws it, he takes the other €300,000 of his lump sum, taxed at 20%. That is the same €60,000 of lump sum tax, but the extra €20,000 is avoided.

The bigger difference is for his family. If he were to die while the €1.6 million is still undrawn and his will leaves it equally to his two children, each would inherit €800,000. With their full thresholds available, each would pay €132,000 in inheritance tax and keep €668,000. Had the same €1.6 million already been in an ARF, each would pay €240,000 in income tax and keep €560,000. That is €108,000 more for each child and €216,000 for the family as a whole.

If their thresholds had already been used by other gifts or inheritances, each child would pay €264,000 in inheritance tax on the undrawn pension. In that case the ARF would leave them €24,000 better off. That is why the pension and the will need to be planned together.

Same pension, same person. On these assumptions, the difference comes from planning done before he drew any benefits.

This illustration is hypothetical and does not describe any client. It ignores investment growth, charges and withdrawals. It assumes no previous pension benefits, no protected higher threshold and no change in tax rules other than the scheduled SFT increases. It also assumes each child has their full €400,000 threshold available, with no other gifts or inheritances using it.

Advice doesn't stop at retirement

Retirement is not the finish line. It can last for decades. The decisions you make during those years can be just as important as the decisions that got you there:

How much income to draw each year and from which assets
When to draw each remaining segment
How your funds are invested once you are no longer contributing
How to respond when markets fall early in retirement
How your wealth will pass to your family

These are not one-off decisions. They need to be revisited as markets move, tax rules change and your own circumstances evolve.

Questions worth asking

Is my pension structured so I can take benefits in stages or only all at once?
Could the timing of my benefits reduce the tax I pay?
What would my family receive and how would it be taxed if I died before or after taking benefits?
Is my retirement income sustainable for as long as I need it?
Does my plan still reflect my family's needs and wishes?

Taking your pension in stages will not suit everyone. Scheme rules, transfer costs and any valuable benefits you might give up all need to be weighed carefully.

Talk it through

Every situation is different. The right approach depends on the full picture of your finances, not just your pension. At McNamara Wealth, we advise on your pensions and investments with that full picture in mind. If you are approaching retirement or reviewing your plans, we would be glad to talk it through.

A Changing Pension Landscape