Pensions
Tax on a pension lump sum
Last updated 16 October 2026
The first €200,000 of retirement lump sums in your lifetime is tax-free; the next €300,000 is taxed at 20%.
When you retire you can usually take part of your pension as a cash lump sum. How much you can take depends on the type of pension; how it is taxed depends on how much you have taken over your lifetime.
How much you can take
- Personal pensions, PRSAs and retirement annuities: up to 25% of the fund.
- Company (occupational) pensions: based on salary and service, up to 1.5 times final pay for someone retiring after 40 years.
How it is taxed
| Part of your lifetime lump sums | Tax |
|---|---|
| Up to €200,000 | None |
| €200,001 to €500,000 | 20% |
| Above €500,000 | Taxed through PAYE at the higher rate (40%) |
The limits are for your whole life and all your pensions together. A lump sum taken from a second pension later uses up what is left. So if your first lump sum was €150,000, only €50,000 of the next one is tax-free.
| Lump sum | Taxed at 20% | Taxed at 40% | Tax |
|---|---|---|---|
| €150,000 | €0.00 | €0.00 | €0.00 |
| €250,000 | €50,000.00 | €0.00 | €10,000.00 |
| €600,000 | €300,000.00 | €100,000.00 | €100,000.00 |
Revenue's own example is a personal pension of €800,000: 25% is €200,000, all tax-free, and that uses up the whole tax-free amount for any later lump sums.
The rest of the fund
What isn't taken as a lump sum can buy an annuity (a pension for life) or go into an Approved Retirement Fund (ARF). In some cases it can be taken as a taxable lump sum. Income from all of these is taxed under PAYE, with USC. An ARF has to pay out a minimum each year from the year you are 61, whether you need the money or not.
To see what your pension could pay, including the tax-free lump sum, use the pension gap calculator.
Work it out
Sources
- Revenue: Taxation of retirement lump sums (€200,000 tax-free, 20% to €500,000) (checked 25/10/2026)
- Revenue: Chargeable excess tax: Standard Fund Threshold €2.2m (2026) to €2.8m (2029) (checked 25/10/2026)
- Revenue: Pensions Manual Chapter 28: imputed distributions from ARFs (4% from 61, 5% from 71, 6% over €2m) (checked 16/10/2026)
- Citizens Information: Taxation of pensions (occupational pensions: income tax and USC, no PRSI; social welfare pensions: income tax only) (checked 16/10/2026)
General information, not tax advice. HeyPenny is not a tax agent.