Why pay into a personal pension instead of a savings plan or lump sum investment?

This is a question people often ask me and for the sake of simplicity I would say the difference needs to be looked at under two main headings:

  1. Tax efficiency
  2. Time


1. Tax relief is available on contributions to a personal pension plan within certain limits. Effectively that means that for a higher rate tax payer, a €100 pension contribution will only cost them €60 (tax relief at 40%). Any fund growth in a pension is tax free and a substantial amount of the pension fund at retirement can be taken tax free also.

Payments to savings and investments accounts/plans, on the other hand, do not receive tax relief. Additionally, any investment growth or interest earned may be subject to DIRT or Exit Tax


2. Pensions tend to be for a longer period of time than savings or investment plans. Generally, the earliest you can take benefits from a personal pension is aged 60. Therefore, they are usually unsuitable as shorter term savings plans. If, for example, you were hoping to accumulate a fund to pay for a child’s education down the line you would probably be much better off putting your money into a savings plan or investment bond.


Of course, there are many other reasons a person would invest in one instead of the other but this would need to be looked at on an individual basis as everyone’s circumstances are different. I’d be happy to discuss this with you if you would like to give me call or drop me an email.


Gerard Ward

4th January 2017