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Pensions & USC

Budget 2011 - public service retirement benefits | Universal Social Charge (USC)



Budget 2011 - public service retirement benefits

In addition to the usual factors such as pensionable service, pensionable pay etc., the recent emergency measures introduced by Government are also relevant when calculating public service retirement benefits.

This relates, in particular, to the reduced pay rates already operative from 1 January 2010 and the new public service pension reduction introduced from 1 January 2011. A person’s actual date of retirement will also be of significance.

New Public Service Pension Reduction (PSPR)

As announced in Budget 2011, the Government has decided that public service pensions above €12,000 a year will be reduced by an average of 4%. The actual reduction will be progressively more for those with higher rates of pension. Pensions below €12,000 a year will be exempt from the reduction.

The PSPR, which is operative from 1 January 2011, applies to:

those currently receiving public service pensions, including dependants’ pensions; and
public servants who retire on pension during the ‘grace period’ up to and including 29 February 2012.

For this group, annual public service pensions above the €12,000 level will be reduced on the following basis:


Annual Public Service Pension € Reduction rate %
First 12,000 0%
Between 12,001 and 24,000 6%
Between 24,001 and 60,000 9%
Balance above 60,001 12%


The following table shows the effect of the reduction on different levels of public service pensions:

Pension before reduction € Annual reduction € Annual reduction %
12,000 0 0%
15,000 180 1.2%
20,000 480 2.4%
25,000 810 3.2%
30,000 1,260 4.2%
40,000 2,160 5.4%
50,000 3,060 6.1%
60,000 3,960 6.6%
80,000 6,360 8.0%
100,000 8,760 8.8%


As indicated in Budget 2011, the PSPR does not involve any change in existing public service pension terms. All public service pensions will first be calculated in accordance with those terms. The PSPR is then applied after the pension has been calculated in the normal way.

Public service pay reductions and the 'grace period'

The pay reductions were implemented from 1 January 2010. The Government has decided to extend – to 29 February 2012 – the period under which retirement benefits are calculated by reference to the pre-cut rates of pay (operative from 1 September 2008). This grace period had been due to expire on 31 December 2011.

This means that for public servants retiring before 1 March 2012:

  • their pensions will first be calculated in the normal way based on the pre-cut pay rates, and then reduced as appropriate by the PSPR;
  • their retirement lump sum will be calculated on the pre-cut pay rates.

As a result of the PSPR, there will be an average reduction of 4% in pension paid to relevant existing pensioners and to those public servants who retire before 1 March 2012.

However, public servants who retire on or after 1 March 2012 will not be affected by the PSPR. Their pay is already reduced by about 7% on average and because their pension and retirement lump sum will be calculated by reference to those reduced rates of pay, the Government has decided that the pension reduction measure will not apply to this group.

Related matters

Retirement lump sums or death gratuities are not affected by the PSPR. As decided by Government, retirement lump sums below €200,000 will continue to be exempt from income tax.

There is no change in the method of calculating employee pension contributions payable by public servants, including the Pension-Related Deduction (the ‘pension levy’). However, from 1 January 2011, such contributions will be subject to employee PRSI and the new ‘Universal Social Charge’.

There is no change in the method of determining occupational pension increases for serving public servants and existing pensioners.

As announced in Budget 2011, there is no reduction in the rate of State Pension payable by the Department of Social Protection. Where a public service pensioner also gets a State Pension, the State Pension is not subject to the PSPR.

Pensions Section
Department of Defence

23 December 2010




Universal Social Charge (USC)

As part of the Government’s ongoing reform of the income tax system, a new broad-based Universal Social Charge (USC) came into effect from 1 January 2011.

The USC is separate from income tax and replaces both the Health Levy and Income Levy. However, it has a wider base and a lower rate when compared to the combined impact of the Income Levy and Health Levy. The USC is a tax on the community at large and does not confer a benefit to those paying the charge.

The USC, which applies from 1 January 2011, is payable on gross income from all sources, including earnings from employment, public service pensions etc.

Everyone concerned is liable to pay the USC on entire income once their gross income exceeds the threshold of €4,004 a year (€77 a week). This is similar to the mechanism previously used for the Income & Health Levies.

The USC will be applied at the following rates:

Rate of USC Annual Income
0% where less than €4,004
2% on the first €10,036
4% on the next €5,980
7% on the balance


Categories exempt from the USC include:

all Department of Social Protection and similar payments, including the State Pension;
income already subjected to DIRT; and
certain other income sources that are designated as exempt for tax purposes under existing legislation.


Therefore, where an individual has both a social welfare-type payment (e.g. State Pension) and other income, the other income will be liable to the USC once it exceeds the annual entry threshold of €4,004.

There are no general age-related exemptions. However, persons aged 70 years or over are not liable to the USC at the maximum 7% rate. Instead, they pay 2% on the first €10,036 of relevant income and 4% on income above that amount (irrespective of the overall level of their income).

Persons entitled to a full Medical Card are subject to the USC. The exemption that previously existed in relation to Income Levy for people who hold a full Medical Card is not a feature of the USC.

Where both spouses have reckonable income in their own right, the USC is payable by them as individuals in respect of their own personal income. Similarly, married couples who are jointly assessed for income tax are not permitted to double the threshold limit of €4,004 a year. This threshold applies to each spouse individually.

The USC is applied after a public service pension has been reduced, as appropriate, on foot of the new Public Service Pension Reduction (PSPR).

For further details see Budget 2011 and Revenue FAQ http://www.revenue.ie/en/spotlights/universal-social-charge.html

Prepared by:

Pensions Section
Department of Defence
January 2011

Note: This document is for information purposes only and is not a legal interpretation.

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