How pension tax relief works
The amount of tax relief you can get on your own contributions to a pension depends on your age.
Tax relief is given at your marginal (highest) tax rate. However, there is no relief in respect of PRSI and the Universal Social Charge.
For everyone, there is a maximum annual amount of earnings for which tax relief is given.
Pensions are a very tax-efficient way of saving
When you contribute to a pension scheme, the net cost or the 'real' cost to you isn't as high as you would initially think.
The Government provides generous tax relief at your highest tax rate to encourage pension saving. In other words if your income levels bring you into the higher income tax bracket then you get tax relief at that rate.
Likewise, if your income level means that you are paying tax at the lower rate only, then this is the rate at which you get the tax relief.
How pension tax relief works
You decide how much you need to contribute to your pension to provide you with a comfortable retirement.
Examples of income tax pension relief;
For example, for €300 a month, your "take-home" pay will only go down by €180 if you pay tax at 40% and by €240 if you pay tax at 20%, but €300 will be invested into your pension plan.*Marginal tax rate as of January 2015
Are there any limits on pension saving?
It would be nice if you could save unlimited amounts into your pension plan and get tax relief, however, because the tax breaks are so good, the Government puts limits on them.
These limits are very generous and are based on your income and age and they are subject to a maximum earnings limit (see below).The following table shows the percentage of your income that you can get tax relief on when contributing to a pension plan, depending on your age.
Age Maximum % of taxable earnings allowable for tax relief on your pension contributions
Under 30 15%, 30-39 20%, 40-49 25%, 50-54 30%, 55-59 35%,60 and over 40%
If you are self employed, member of an occupational pension scheme, a public sector employee the maximum contribution levels for tax relief relate to the total employee contributions to a pension.
For Group PRSAs, these levels include the employer as well as any employee contributions.
Want to know more? We are available to discuss your options, and we look forward to hearing from you.
Our job is to help you choose a product and structure that will help you meet your goals.
telephone | 091441188 and/or email | office@nelsonlife.ie
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