A pension is just a savings plan for retirement, but with the difference, you get two major benefits.
One, when you contribute to a pension, you can save tax at whatever your higher rate of tax is subject to regulatory limits. Simply speaking for every €1000 you put into your pension the government, if you're on the high rate of tax gives you an extra approximately €400.
The next distinct advantages is that the monies that you have in a pension grows tax-free. So in other words, when you make a return on your investment, you don't have to pay capital gains tax or make an income tax return your pension, it grows tax-free.
And of course, a major advantage then is that when you retire, which is generally from age 60 onwards subject to regulatory limits, you can get 25% of your pension out tax free. The maximum limit you can take out tax-free at the moment is €200,000. However, the next €300,000 is taxed at the lower tax rate at 20%. So therefore your extract up to half a million tax efficiently from your pension.
Another underplayed advantage is that it forces you to save, it helps you manage your budgets and therefore you live within a level which allows you to save for the future. By putting a little amount, even over a long period of time into your pension, allows you to adopt your budget so that you can fund your pension, which minimises the financial pain that you may have had to suffer.
For more on pensions please feel free to contact our office.