When it comes to easy ways to maximise long term returns from an investment in a tax efficient manner, there is no better way to do it than through a pension. Contributions to a plan are tax free, up to certain limits, and as they are a long-term savings they can build to provide a comfortable post-retirement income.
For farmers with an off-farm income and an existing pension through their employer, a good year on the farm can give room to increase contributions to that pension from their off-farm income which will reduce their overall tax liability.
The limits to how much can be contributed to a pension in any year are outlined in Figure 1, with the tax-free amount increasing depending on how old you are when the contribution is made.
Employer contributions to a pension are not counted as part of this limit. At any age there is an annual income cap of €115,000 on the tax-free contributions.
For example, a 52-year-old earning €150,000 can contribute 30% of their income up to €115,000 tax-free into their pension, meaning their maximum tax-free contribution would be €34,500, rather than €45,000 (30% of €150,000).
The limits are the same whether you are contributing to an employer pension or have a private pension.
Whether you have a private pension or not, it is also important to ensure that you have your PRSI contributions for the Contributory State pension up to date. Recent changes in how those PRSI contributions are calculated mean that to qualify for a full State pension in future you will need to have made 2,080 lifetime PRSI contributions. This equals 40 years of weekly contributions.
For those closer to retirement age, the change in how contributions are being calculated is being phased in over ten years and will be in full effect by 2034.
One of the key things about pensions is the earlier you start to make contributions, the less it will cost to build a reasonable pension pot.
For example, investing €10,000 per year from the age of 25 in a pension would lead to a pension pot of €600,000 by 65 (presuming 4% compounded investment growth).
Starting to make the same annual contribution level at 35 would reduce the pension pot at 65 to €400,000.
In effect this means that the later you start making contributions, the larger they will have to be in order to reach a level required for a comfortable retirement.
Auto-enrolment in a pension scheme
There is a very important change coming to pensions legislation which is that all employees of a company have to be automatically enrolled in a pension scheme. This legislation is very important for any farmers who have set their operation up as a company and put themselves down as an employee.
If they pay themselves a wage of more than €20,000 per annum then they will have to also enrol themselves in a pension plan. If there are other employees on the farm, they too will have to be enrolled in a pension. According to the legislation, any new employee will have to be enrolled in the pension plan from the very first day of their employment. If you are an employer (even if it is only of yourself) it is important to understand the implications of this legislative change, so it’s definitely worth getting some financial advice ahead of the launch of the scheme.
The scheme was originally scheduled to come into effect from 1 January of this year, but that launch has since been delayed at least twice and is now set to be in effect from the start of 2026. This extra time should be used to ensure you understand the implications of the new measures and if they will cover your farming business.
When it comes to easy ways to maximise long term returns from an investment in a tax efficient manner, there is no better way to do it than through a pension. Contributions to a plan are tax free, up to certain limits, and as they are a long-term savings they can build to provide a comfortable post-retirement income.
For farmers with an off-farm income and an existing pension through their employer, a good year on the farm can give room to increase contributions to that pension from their off-farm income which will reduce their overall tax liability.
The limits to how much can be contributed to a pension in any year are outlined in Figure 1, with the tax-free amount increasing depending on how old you are when the contribution is made.
Employer contributions to a pension are not counted as part of this limit. At any age there is an annual income cap of €115,000 on the tax-free contributions.
For example, a 52-year-old earning €150,000 can contribute 30% of their income up to €115,000 tax-free into their pension, meaning their maximum tax-free contribution would be €34,500, rather than €45,000 (30% of €150,000).
The limits are the same whether you are contributing to an employer pension or have a private pension.
Whether you have a private pension or not, it is also important to ensure that you have your PRSI contributions for the Contributory State pension up to date. Recent changes in how those PRSI contributions are calculated mean that to qualify for a full State pension in future you will need to have made 2,080 lifetime PRSI contributions. This equals 40 years of weekly contributions.
For those closer to retirement age, the change in how contributions are being calculated is being phased in over ten years and will be in full effect by 2034.
One of the key things about pensions is the earlier you start to make contributions, the less it will cost to build a reasonable pension pot.
For example, investing €10,000 per year from the age of 25 in a pension would lead to a pension pot of €600,000 by 65 (presuming 4% compounded investment growth).
Starting to make the same annual contribution level at 35 would reduce the pension pot at 65 to €400,000.
In effect this means that the later you start making contributions, the larger they will have to be in order to reach a level required for a comfortable retirement.
Auto-enrolment in a pension scheme
There is a very important change coming to pensions legislation which is that all employees of a company have to be automatically enrolled in a pension scheme. This legislation is very important for any farmers who have set their operation up as a company and put themselves down as an employee.
If they pay themselves a wage of more than €20,000 per annum then they will have to also enrol themselves in a pension plan. If there are other employees on the farm, they too will have to be enrolled in a pension. According to the legislation, any new employee will have to be enrolled in the pension plan from the very first day of their employment. If you are an employer (even if it is only of yourself) it is important to understand the implications of this legislative change, so it’s definitely worth getting some financial advice ahead of the launch of the scheme.
The scheme was originally scheduled to come into effect from 1 January of this year, but that launch has since been delayed at least twice and is now set to be in effect from the start of 2026. This extra time should be used to ensure you understand the implications of the new measures and if they will cover your farming business.
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