State pension is exempt
The Department of Social Protection state pension (contributory and non contributory) is exempt from USC. It is also exempt from PRSI but is subject to PAYE in some cases.
This means USC is only relevant to occupational pensions, private pensions, ARFs, and other non state retirement income.
Reduced rate for over 70s
People aged 70 or over with total annual income of €60,000 or less qualify for the reduced USC rate. The cap is 2 percent on income above €28,700, the same cap as for medical card holders.
Worked example, age 72, modest pension
Margaret receives:
- State pension: €15,000 (USC exempt)
- Occupational pension: €25,000
USC applies only to the occupational pension.
| Band | Income | Rate | USC | | --- | --- | --- | --- | | First €12,012 | €12,012 | 0.5 percent | €60.06 | | Next €12,988 | €12,988 | 2 percent | €259.76 | | Total | | | €319.82 |
Worked example, age 75, larger pension
Tom receives a state pension of €15,000 and an ARF withdrawal of €50,000.
Total income for the €60,000 test: €65,000. He exceeds the threshold so the reduced rate does not apply. USC on the €50,000 (state pension exempt):
- 0.5 percent on €12,012 = €60.06
- 2 percent on €16,688 = €333.76
- 3 percent on €21,300 = €639.00
- Total USC: €1,032.82
Approved Retirement Funds
ARF distributions are subject to USC in the same way as occupational pension drawdowns. If the ARF holder is 65 or over there is no PAYE deduction by the qualifying fund manager once exemption is claimed, but USC still applies.
Pension lump sums
The tax free retirement lump sum (up to €200,000) is also USC exempt. Amounts above that limit may incur USC if they exceed the standard chargeable thresholds.
Educational notice
Pension tax is intricate. This article is general information. Speak to a qualified financial adviser before making decisions about your retirement income.