Contributory Pension Question + PRSA Pension...

WetDaddy

Firstly, apologies for the "green" question, but I'm finding it hard to get clear info online.

I have a pension scheme with my employer. I contribute 8% of my salary and they match it. Let's call that 8% = €100 for the sake of simplicity. I have statements from the pension provider that €200 is going in each month, half from me, half from my employer.

I am also aware that these kind of contributory pensions benefit from tax relief (at least my own €100 does; the employer's tax or lack thereof on *their* side is their concern and not mine). However, given that my salary slip shows €100 on the deduction side, where exactly do I see the evidence of the tax relief I am getting? Should be in the form of lower PAYE deduction, or higher tax credits or something?

Each year, I submit my P60 & my wife's P60 to get a P21 balancing statement. On occassion, there has been some overpayment on our part and we get a couple of hundred back, but that's usually down to the fact that she's not 9-5 and always works on commission, so her salary varies from month to month. Years where she has not worked, the tax payment has been correct. Does that have any bearing on my pension / tax questions above?

Finally, last question: Up until a few years ago, I believe my pension was showing as "PRSA" on my salary slip. My employer changed provider and scheme about 3 years ago (I've been with my employer for 9 years and have had a pension for all of that time) and now it shows up as "PEN PHI". Does that make any difference to my questions or my situation?

The reason I ask this as it's turned out that my colleague's pension has been hilariously miscalculated amongst other things on his payslip, with a result in the payroll department "charging" him far more than he should have been for the last 3 years. He's in the middle of sorting that out, but I thought I'd ask the questions above for the two of us.

Thanks in advance - and apologies again if I've missed details!

NewCorkLad

Your pension contribution is being deducted at source, as such it is being taken from your wages before PAYE has been deducted from you so you will be paying less tax.

The change in pension looks as if your employer has added PHI(Permanent Health Insurnace) which is income protection to the scheme but you would need to clarify this with them.

WetDaddy

Thanks for the reply! The PHI definitely makes sense, that's a change they added around the same time as the line item description changed from PRSA to PEN PHI.

I understand what you mean about the deduction happening at source, i.e. lowering my "taxable income". But my question is: Where is the evidence of this?

If I take my salary from the left hand side of the payslip and multiply it by 12, then I get my annual salary as agreed upon with my employer. So, my monthly salary as on the payslip has not been lowered as a result of my pension contribution being removed.

So, where does that tax relief at source happen? Is my PAYE amount just simply lower than it would be if I had no pension contribution whatsoever? Is there a way to calculate and prove this, i.e. see the "before" and "after" figures?

Apologies again if my questions are ill informed - just trying to understand the process!

Xaniaj

WetDaddy wrote: »

I understand what you mean about the deduction happening at source, i.e. lowering my "taxable income". But my question is: Where is the evidence of this?

If I take my salary from the left hand side of the payslip and multiply it by 12, then I get my annual salary as agreed upon with my employer. So, my monthly salary as on the payslip has not been lowered as a result of my pension contribution being removed.

So, where does that tax relief at source happen? Is my PAYE amount just simply lower than it would be if I had no pension contribution whatsoever? Is there a way to calculate and prove this, i.e. see the "before" and "after" figures?

Apologies again if my questions are ill informed - just trying to understand the process!

Taking your 100eur example, each month you contribute 100eur before tax. Let's say your tax rate is 20% so if you were to invest in a private pension, you'd only have 80eur to invest as the amount would be less your 20% tax (excluding tax credits for simplicity!)

WetDaddy

Xaniaj wrote: »

Taking your 100eur example, each month you contribute 100eur before tax. Let's say your tax rate is 20% so if you were to invest in a private pension, you'd only have 80eur to invest as the amount would be less your 20% tax (excluding tax credits for simplicity!)

So, let's say I earn €1,000 a month. I have a €100 contribution, which gets tax relief at source. Therefore, am I correct in assuming my taxable income is €900?

If that's correct, then it my tax (i.e. my PAYE, I assume, not my PRSI / USC / LPT or any other deductions I have on my payslip) should be a percentage of €900 and not of the full €1,000.

Is that correct and, if so, how do I calculate this is accurate using the figures from my payslip?

I have to ask since our Payroll Dept / HR have seemingly messed a whole bunch of things recently. We're the only two Irish employees, so it's not like they have a lot of proven experience with Irish taxation, etc.

[My whole reasoning here is to make sure my payslip is correct!]

coylemj

WetDaddy wrote: »

So, let's say I earn €1,000 a month. I have a €100 contribution, which gets tax relief at source. Therefore, am I correct in assuming my taxable income is €900?

Yes, you pay PAYE based on gross salary minus pension contribution. Let's call that number your net taxable salary.

WetDaddy wrote: »

If that's correct, then it my tax (i.e. my PAYE, I assume, not my PRSI / USC / LPT or any other deductions I have on my payslip) should be a percentage of €900 and not of the full €1,000.

Sometimes, but it's often not that simple. See below.

WetDaddy wrote: »

Is that correct and, if so, how do I calculate this is accurate using the figures from my payslip?

First a few basics...

1. The standard rate tax band is currently €33,800 meaning that if your net taxable salary does not exceed €33,800, you pay tax at the standard rate which is currently 20%.

2. €33,800 divided by 12 is €2,817, this is known as the Standard Rate Cut-Off (SRCO), it's the amount of net taxable salary you can make each month before you go on to the higher rate of tax which is 40%. So the first €2,817 will be taxed at 20% and the balance at 40%

If you have an uneven income because of shift allowance, sales commission etc., any partially used SRCO in some months can be used in later months i.e. it's applied cumulatively as the year progresses so you won't lose any unused SRCO.

3. Assuming that you have a flat income, if your net taxable salary is a given month is greater than €2,817, this is how your PAYE is calculated....

The first 2,817 at 20%
The balance at 40%

So in your case, if you are paying €100 gross pension contribution, the net cost of that contribution to you will be €80 p.m. if your net taxable salary in a month is less then €2,817 and it will be €60 p.m. if that number is greater than €2,817.

You will also get tax credits but these are flat and will be applied equally each month, you can see the current credits here...

http://www.revenue.ie/en/tax/it/leaflets/it1.html#section1

WetDaddy

coylemj wrote: »

Yes, you pay PAYE based on gross salary minus pension contribution. Let's call that number your net taxable salary.



Sometimes, but it's often not that simple. See below.



First a few basics...

1. The standard rate tax band is currently €33,800 meaning that if your net taxable salary does not exceed €33,800, you pay tax at the standard rate which is currently 20%.

2. €33,800 divided by 12 is €2,817, this is known as the Standard Rate Cut-Off (SRCO), it's the amount of net taxable salary you can make each month before you go on to the higher rate of tax which is 40%. So the first €2,817 will be taxed at 20% and the balance at 40%

If you have an uneven income because of shift allowance, sales commission etc., any partially used SRCO in some months can be used in later months i.e. it's applied cumulatively as the year progresses so you won't lose any unused SRCO.

3. Assuming that you have a flat income, if your net taxable salary is a given month is greater than €2,817, this is how your PAYE is calculated....

The first 2,817 at 20%
The balance at 40%

So in your case, if you are paying €100 gross pension contribution, the net cost of that contribution to you will be €80 p.m. if your net taxable salary in a month is less then €2,817 and it will be €60 p.m. if that number is greater than €2,817.

You will also get tax credits but these are flat and will be applied equally each month, you can see the current credits here...

http://www.revenue.ie/en/tax/it/leaflets/it1.html#section1

This is brilliant stuff, thank you very much!

And thanks to the others who replied to this thread too. It's hard to get *in depth* info on this stuff online - cheers!

AlexisM

Sorry to complicate things further... You should also check if your pension is still a PRSA (which it seems to have been labelled previously on your payslip). Employer contributions to a PRSA are treated as a benefit in kind with respect to USC contributions - if you are the only 2 Irish employees, your payroll department may be unaware of this.