Taxation of pensions

Taxation of retirement lump-sums

At retirement, an individual with a personal pension is entitled to a retirement lump sum of 25% of their fund. In an occupational scheme this sum is based on the individual’s salary and service. This can be taken as a tax-free lump sum subject to certain limits. The remaining funds can be taken as an annuity, transferred to an Approved Ritirement Fund (ARF) or taken as a taxable lump sum. Each of these options is subject to tax under the Pay As You Earn (PAYE) system. 

The tax free amount is a lifetime entitlement of €200,000 on retirement lump sums from all sources. Where a retirement lump sum is more than €200,000, excess lump sum tax will be charged. The amount between €200,001 and €500,000 is taxable at the standard rate of tax (20%). Any amount in excess of €500,000 is taxed under PAYE at the higher tax rate (40%).

  • Example 

    An individual with a personal pension retires with a fund of €800,000. They’re entitled to take 25% of the fund as a retirement lump sum, which is €200,000. As they have no other retirement lump sums,  they won’t pay tax on this amount. Their full tax-free amount has been used, and any future retirement lump sums would incur excess lump sum tax. The remaining €600,000 can be taken as an annuity, transferred to an ARF or taken as a taxable lump sum. For further information and examples on the taxation of retirement lump sums, please see Pension Manual Chapter 27.

Lump sum payments arising from foreign pension arrangements are taxed in the same manner. However, you must include details of the lump sum on an Income Tax Return (Form 11 or Form 12). You must pay any tax due when making your annual Income Tax payment.

Next: Chargeable excess tax

Published: 08 June 2026 Print this page

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