Pension Contributions >> General

Arrangements for making pension contributions have never been easier following the introduction of PRSA’s, Self Administered Schemes etc, etc. This is also one of the few remaining areas where there are very generous tax reliefs available. It is also possible to make pension contributions after the end of the tax year and still get the benefit of the tax relief against the earlier tax year. This is a very important tax and financial planning arrangement which should be considered every year.

Who Can Claim?

Any individual who is either Self Employed or in nonpensionable employment. In addition employees in a company pension scheme can also make Additional Voluntary Contributions (AVC’s) to maximise their pension funding and save tax. 

What Tax Relief is Due?

If you pay tax at the top rate then your tax relief is worth 41% of whatever premium you are paying. If your tax rate is 20% then the tax benefit is at a rate of 20%. 

Example: 

It is intended to reduce the rate of tax relief to 20% by the year 2014.The top rate of relief will be reduced to 34% in 2012 and 27% in 2013. Finally from 2014 onwards the rate of tax relief will be 20%.

Tax Saving Tip

If you pay tax at the 41% rate ensure you make maximum pension contributions for the years 2010 and 2011 to obtain tax relief at the top rate.

Is there a Limit on the Amount of Pension Contribution Qualifying for Tax Relief?

Yes, there is a ceiling based on the amount of your earnings and also your age, upon which tax relief is allowed. See our calculator for working out the maximum allowable amount for tax purposes. 
There are two limits which restrict the amount qualifying for tax relief, based on earnings and age.

The following tables show the restrictions which apply to pension contributions. 

TABLE 1 shows the maximum income against which pension relief can be claimed

* For pension top up payments made in 2011 for claiming against 2010 the 2011 annual earnings cap of €115,000 will apply for calculating the tax allowable top up payment due against 2010.
The amount of pension contribution qualifying for tax relief is further restricted to a percentage of your qualifying earnings. The allowable percentage amount depends on your age. The scale is as follows;
TABLE 2

TABLE 3
Table 3 shows the maximum allowable pension contribution that can be made for Years 2011 and 2010. 

Only income from employments or self employed earnings qualifies for pension tax relief. Pension tax relief is not allowed against Rental Income, Investment Income or Capital Gains. The income of spouses is treated separately for tax relief purposes. Pension tax relief can be claimed for contributions made by an individual until they reach 75 years of age. 
Certain charges on income are deducted from your earnings e.g. maintenance payments before applying the allowable percentage applicable to your age. 

Tax Saving Tip

Self Employed individuals should, if married, consider trading as a partnership with their spouse ( assuming spouse has no other income). This will double the allowable limits for pension tax relief and reduce the effect of the reductions in the rate of tax relief which applies for 2011.