First Time Pension Stupid question

donutheadhomer

My job is offering a pension - they match our contributions up to 10pc. Seems ok.

I'm being a right idiot here but in relation to taxt relief: say I pay €175pm PAYE at the standard rate at the moment and not earning enough to pay at higher rate thankfully. If I contribute €175 to pension does that mean I pay zero tax?

Pablo Sanchez

Matching up to 10% is indeed a good deal!

Your pension contribution will be taken from your months gross pay (ie before tax). This then means that while you are paying €175 into your pension yourself, you are in fact only losing the use of €140 as you would have paid €35 tax on the full €175 if you did not contribute.

A higher rate tax payer would benefit more than double that, the 175 contribution would only cost them the use of approx 103 in real terms.

Sorry if its written in a confusing way!

HowFinancial

1. Employer Contributions: €175 (you pay 0 tax)
2. Your Contributions: €175 Gross (less tax relief @ 20%) = €140 Net

10% matching employer contributions is a super offering and you should take it if at all possible.

"If I contribute €175 to pension does that mean I pay zero tax?"
It means that you pay no PAYE on this portion (€175) of your income. However Universal Social Charge (up to a maximum of 7% in your case) will apply.

I cannot stress how good this offering is. Effectively you contribute 10% in order to get the employer 10% as well. In addition you get tax relief on your contributions.

donutheadhomer

thanks for the help guys. I signed up anyway.