Pensions
Core concepts
Pension questions test the three pillars: state (basic/social), occupational (defined benefit vs defined contribution), and personal (personal pension, stakeholder, PRSA). Know contribution limits, tax relief, annual allowance / lifetime limits, vesting, retirement ages, annuity vs drawdown, tax-free lump sum, and death benefits.
Understand defined benefit (promised benefit based on salary/years) versus defined contribution (pot depends on contributions and investment returns). Know transfer values, early retirement reductions, preservation, and scheme wind-up rules. For personal pensions, know the cooling-off period, charging structures, and how tax relief is applied (relief at source vs net pay).
Traps
- Confusing annual allowance (yearly contribution cap) with lifetime allowance (total pot cap).
- Assuming tax relief is always at the marginal rate - relief at source may be basic-rate only, with higher-rate claimed separately.
- Mixing annuity (guaranteed income, irreversible) with drawdown (invested, flexible, riskier).
- Forgetting that early retirement usually reduces benefits.
Rule of thumb
Ask: Is the benefit promised (DB) or pot-based (DC)? That single answer drives most pension calculations.
Worked example
A client with a DC pot of €200,000 at retirement can take a tax-free lump sum (typically 25%) of €50,000, with the remaining €150,000 used to buy an annuity or enter drawdown.