Let’s say you amass a pension fund of €2m on retirement.
You take a lump sum of €500k (25% of €2m). The first €200k is tax free and the €300k balance is taxed @20%.
You transfer €1.5m to an ARF and start drawing it down @4% (€60k) per annum from 60.
If you’re single, total deductions (income tax, USC and PRSI) on €60k come to €16,797 as things stand. That’s an effective tax rate of 28% on the ARF drawdowns.
And PRSI falls away at 66.
In other words, pensions are highly efficient from a tax perspective if you are getting relief @40% right up to a pension fund of €2m, even if the tax efficiency starts to gradually diminish after €800k (because of the €200k cap on the tax free lump).
The important point is to look at the effective (or blended) rate of tax paid on drawdowns and not to focus on the fact that a portion of the drawdown is taxed at 40%+.
Hope that helps.