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A retirement annuity contract (RAC) can be taken out by an individual who currently has relevant earnings liable to income tax, i.e. income earned from a self-employed trade or profession or from a non-pensionable employment. A non-pensionable employment is an employment where the individual’s employer has not included that individual in an employer pension scheme for retirement benefits.
Examples of individuals who can contribute to an RAC include:
• Self-employed professionals, for example, accountants, solicitors, dentists, doctors, etc, as well as partners in partnerships.
• Self-employed individuals engaged in a trade, i.e. not trading through a company, for example, plumbers, decorators, builders, etc.
• Farmers.
• Employees in non-pensionable employment.
• Individuals engaged in contract type work on a self-employed basis, i.e. not as an employee
Note that:
• An individual may have more than one source of earnings and may be able to contribute to an RAC if at least one of the sources of income is relevant earnings.
For example, an individual may be employed in the civil service in pensionable employment but have a separate part time farming income (which is relevant earnings) which could be pensioned separately with an RAC, even though they are in pensionable employment in the civil service.
• A spouse/civil partner who has their own relevant earnings is eligible to take out an RAC in respect of their income, even if their spouse/civil partner is in pensionable employment and they are assessed to income tax under joint assessment.
An individual who doesn’t currently have relevant earnings but in the past had and contributed to an RAC at that time, can contribute to their RAC now even though they do not currently have relevant earnings.
Personal Contributions to RACs and PRSAs
An individual who pays into an RAC and/or PRSA can deduct the contributions from their relevant earnings for income tax purposes (but not for USC or PRSI), up to a limit each year related to the individual’s age and net relevant earnings (NRE) in that tax year:
Age attained during year Income relief limit (as a % of NRE)
Less than 30 15%
30 to 39 20%
40 – 49 25%
50 – 54 30%
55 – 59 35%
60 and over 40%
There are exceptions to the table above:
• Certain professional sportspeople, for example, football and rugby players, are allowed a higher 30% of net relevant earnings limit on RAC/PRSA contributions made under age 50, for earnings derived ‘wholly or mainly’ from their sports occupation.
• The maximum net relevant earnings that can be considered for the purposes of the tax
relief limits on RAC and PRSA contributions is currently € 115,000.
Example: Ciara is a self-employed dentist. Her net relevant earnings for 2023 are €100,000. She is aged 32 in 2023. The maximum total contributions to RACs and PRSAs combined which Ciara can offset against her relevant earnings for income tax purposes in 2023 is: 20% x € 100,000 = € 20,000.
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