Tax relief and growth benefits of pensions

Contributing to a pension provides tax relief, reducing the amount of tax paid on income. For example, if earning €40,000 a year, putting €10,000 into a pension would cost €8,000. Pensions also offer tax-free growth, allowing investments to grow without being taxed. Additionally, when accessing the pension in retirement, tax-free lump sums are available. The portion of the lump sum up to €200,000 is tax-free, while the next €300,000 is taxed at 20%. The remaining balance in the pension is subject to income tax when withdrawn. Despite this, the overall tax benefits of pensions, such as tax relief and tax-free growth, often outweigh the taxes paid on withdrawals.