What is tax relief and how does it work?

Tax relief is a government incentive that reduces the amount of income tax you pay when you contribute to your pension, making saving for retirement more affordable. In Ireland, this applies to contributions made to a Personal Retirement Savings Account (PRSA), like the one offered by Zen Pensions, Ireland’s first fully digital pension.

How it works in Ireland:

• When you contribute to your Zen Pensions PRSA, you get tax relief at your marginal rate of income tax – that’s 20% if you’re a standard rate taxpayer or up to 40% if you’re a higher rate taxpayer. This means you effectively pay less tax on that income because it’s being saved for your future.
• The amount of your income that qualifies for tax relief depends on your age, with limits set as a percentage of your earnings as follows:
  • Under 30 years: 15% of your earnings
  • 30 to 39 years: 20%
  • 40 to 49 years: 25%
  • 50 to 54 years: 30%
  • 55 to 59 years: 35%
  • 60 and over: 40%
• There’s a maximum earnings threshold of €115,000 per year for tax relief purposes. If you earn more than this, tax relief applies only up to this limit.
• Employer contributions to your Zen Pensions PRSA are also eligible for tax relief, but from 2025, employer contributions to a PRSA are capped at 100% of your salary per year. Any excess counts as a taxable Benefit in Kind for you.

Why does this matter?

Tax relief means the government is effectively supporting your retirement savings, so your money grows more efficiently for when you retire. With a Zen Pensions PRSA through your employer, you receive tax relief automatically at source i.e., through payroll, ensuring you get the most out of your contributions without fuss.

In a nutshell, tax relief boosts your retirement savings by reducing your tax bill today, so your future self can thank you tomorrow.

For more detailed guidance or personal advice, it’s always good to chat with a financial advisor, especially if your situation is complex.