In the recent Budget there were no real major changes to pension tax relief.
Depending upon your employment category – Employee, Self Employed, Dual income or Director – there are many different types of pension contact that you can use to claim relief.
The types of policy you may be recommended to set up/ or have currently may be either; Personal Pension, PRSA, AVC PRSA, AVC or an Executive Pension.
The percentage of tax relief you can claim is limited by the earnings cap (set at €115,000) and by age related limits;-
under 30= 15%, 30 to 39 = 20%, 40 to 49 = 25%, 50 to 54 = 30%, 55 to 59 = 35% and 60 + = 40%.
Therefore, a 40 year old earning €130,000 per annum – maximum amount they can invest is 25% x €115,000 = €28,750.
If you have TWO sources of income then the “pensionable salary” must use up the earnings limit first.
This will reduce the scope to use up relief against non pensionable/self employment income.
(for more information, please read the “Tax Briefing 74″ Sept 2009, and Tax Briefing 11 – 2010″ Sept 2010).
What are the choices if you have a dual income?
If you are working for the GMS or HSE and have a dual income – you may not be entitled to contribute to a Personal Pension or PRSA if your “pensionable income ” exceeds €115,000
This always needs to be checked.
Instead, you do have the option to set up a stand alone AVC PRSA.
Why choose an AVC PRSA to claim pension tax relief?
- You can choose provider
- Greater fund choice
- You choose charging structure, commission payable or fee basis (we offer the facility to pay for the set up of your AVC PRSA via a fee)
Example 1 – where earnings greater than €115,000
Aoife, aged 42, earns € 140,000 and is a member of HSE pension scheme, investing 6.50% per annum = €9,100 per annum.
Aoife has self employed earnings of €35,000 per annum.
Based earnings cap € 115,000 and age related 25% – maximum investment is €28,750 in total.
Aoife already has made € 9,100 so there is scope for (€ 28,750 – € 9,100) = € 19,650
This investment could be made into a stand alone AVC PRSA (please see benefits above).
Aoife cannot make any pension investment against self employed income.
Example 2 – where pensionable employment income less than €115,000
Eileen, aged 49, earns € 95,000 from “pensionable employment” and has self employed income of €150,000
Say she invests 5% per annum into the occupational pension scheme – this equals €4,750 per annum.
There is scope here to make additional investment of € 23,750 ( 25% x € 95,000) less € 4,750 = € 19,000 into an AVC PRSA
An additional, (€115,000 – €95,000 = € 20,000 x 25%) = € 4,750 against self employed income.
This can be made to a Personal Pension or a PRSA.
If you have a financial planning or product question please contact us :
This article was written by Rory Nelson, founder of Nelson Life. Rory is celebrating 20 years in financial planning this year. Professional qualifications include; UCD Specialist Diploma in Wealth Management, Pension Trustee Practitioner PTP, UCD Professional Certificate in Stockbroking,UCD Professional Certificate in Asset Management (SIA), QFA FLIA, Pensions Diploma, Mortgage Advice Diploma, CFP module – Tax & Estate Planning and has a degree in BA Accounting & Finance. He has regularly participated in national financial press.
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