Pension and tax

Thanos

Hi folks,

Just thinking about setting up a PRSA. Had a pension in another job but that is in a bond now and need to get going on a new one.

I seem to be getting different info on the tax relief i can get. I thought it was only 20% but the guy in BoI said that it was 40% and someone else said it was 20% but that you can go and claim back the other 20% from revenue, so a bit confused at the moment.

Any clarity on this would be appreciated.

In case it matter I am in my 40's and pay the higher rate of tax.

PaulM1977

If you are paying the higher rate of tax then you are eligible for the tax relief at this rate, i.e. 41% on all contributions you make, once you stay within the tax threshold.
By tax threshold I mean based on your age you can pay in a certain percentage of your salary in to a pension plan and get tax relief on your contributions. If you go above this threshold, then you won't get tax relief on the additional funds above the threshold.

So for under 30 the amount you can pay in to a pension plan is 15% of your Earnings, 30-39 you can pay in 20%, 40-49(the category you would come under) you can pay in 25%, 50-54 you can pay in 30%, 55-59 you can pay in 35% and from 60+ you can pay in 40%.

E.g. a 42 year old earning €50,000.00 can pay in a maximum of 25% of their salary each year, which would be €12,500.00. This can be done on a lump sum basis or on a monthly basis. You are then entitled tax relief at 41% on the €12,500.00(12,500 x 41% = €5,125.00). If you are doing this on an individual basis and not through your employer then you would get all of this this by way of tax credits from Revenue.

I would speak with someone who is independent and not a bank as they will take a percentage of your contribution every month(up to 5%), whereas if you speak with a broker they can get you 100% of your contributions in to your plan.

PaulM

kennyb3

The top rate of tax is now 40% (from 01/01/15) btw.

PaulM1977

kennyb3 wrote: »

The top rate of tax is now 40% (from 01/01/15) btw.

Apologies, it is 40%, thanks for clearing that up.

NewCorkLad

Thanos wrote: »

Hi folks,

Just thinking about setting up a PRSA. Had a pension in another job but that is in a bond now and need to get going on a new one.

I seem to be getting different info on the tax relief i can get. I thought it was only 20% but the guy in BoI said that it was 40% and someone else said it was 20% but that you can go and claim back the other 20% from revenue, so a bit confused at the moment.

Any clarity on this would be appreciated.

In case it matter I am in my 40's and pay the higher rate of tax.

Are you self employed or an employee?

If you pay the higher rate of tax it is at this rate you will receive tax relief. I wouldn't deal with the bank regarding your pension as their charges are generally very high and they move around their advisers. Also do not set up a PRSA if you are eligible to set up a Personal Pension as they are very restrictive regarding charging structures and investment options however that will depend on your circumstances.

EGavigan

Thanos wrote: »

Hi folks,

Just thinking about setting up a PRSA. Had a pension in another job but that is in a bond now and need to get going on a new one.

I seem to be getting different info on the tax relief i can get. I thought it was only 20% but the guy in BoI said that it was 40% and someone else said it was 20% but that you can go and claim back the other 20% from revenue, so a bit confused at the moment.

Any clarity on this would be appreciated.

In case it matter I am in my 40's and pay the higher rate of tax.

If you pay tax at 40% you get relief at 40%. Perhaps the situation is that you are only paying a small portion of your income at 40%. You only get relief at 40% on the portion which you pay tax on at 40% - if you make a pension contribution for more than that, the relief on the difference is given at 20%.

Agree with New Cork Lad that you should probably keep away from PRSA's. The legislation under which they were established is out of date. You can get better value from most personal pensions. However, I wouldn't jump too quick. You should talk to a financial advisor about your situation as there are a lot of factors which need to be considered in order to pick the most suitable product, not least of these is consideration of what arrangement will afford you the most options when you mature your pension down the road. Be careful who you take advice from as some advisors know enough about pensions to be dangerous!

Well done on keeping on top of this. Around half of the working population haven't made any provision for their retirement, probably either because of inaction or because of lack of understanding about how pensions work.