Arrangements for making pension contributions have never been easier following the introduction of PRSA’s, Self Administered Schemes 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 non-pensionable 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 40% of whatever premium you are paying. If your tax rate is 20% then the tax benefit is at a rate of 20%.

Example: 

Premium Paid	Rate	Tax Relief	Net Cost
€12,000	40%	€4,800	€7,200
€12,000	20%	€2,400	€9,600

 

 

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

There are two limits which restrict the amount qualifying for tax relief, based on earnings and age. Our calculators work out the maximum allowable amount for tax purposes.

The limit on the amount of earnings which can be taken into account when calculating the relief is €115,000.

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;

Tax Year
Under 30 Years		15%
30 to 39		20%
40 to 49		25%
50 to 54		30%
55 to 59		35%
60 and Over		40%

 

Therefore the maximum allowable pension contribution that can be made for a tax year is

Under 30	€17,250
30 – 39	€23,000
40 – 49	€28,750
50 – 54	€34,500
55 – 59	€40,250
60 +	€46,000

 

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.