This month we continue our series of communiqués where we address the questions that are frequently asked by our clients. So far we have looked at asset allocation and some income producing investment options. This month we are discussing pension contributions. For us, as advisors, the two questions we are most frequently asked are:
You can make a contribution to a pension and claim tax relief at your marginal rate (41% in many cases). As this is such a generous tax relief, there are limits on the amount of your income that you can contribute. These limits are currently:
|Under age 30||15% of Earnings*|
|30-39||20% of Earnings|
|40-49||25% of Earnings|
|50-54||30% of Earnings|
|55-59||35% of Earnings|
|60||40% of Earnings|
*The maximum earnings that can be included for the purposes of calculating relief for contributions is limited to €115,000.
(1) You can make a personal contribution to your pension in respect of your 2012 earnings until 31st October 2013. This will reduce your tax payment due in October or you can claim a refund of tax if you are paying PAYE.
(2) Many self employed clients are exploring the options available to incorporate some or all of their business where possible. This gives them the flexibility to make employer contributions to their pensions in addition to their personal contributions. Some of the benefits are highlighted below.
How much can my company/employer contribute to my Harvest pension scheme?
Between you and your employer, you can fund an amount that would provide you with an income in retirement of up to 2/3rds of your final salary, subject to your length of service, amongst other factors.
Your employer can claim full corporation tax relief on company contributions made to your pension to reduce their corporation tax liability. In some cases your employer can contribute multiple times your salary. Any employer contributions are not treated as a benefit in kind for you.
An employee aged 50, with a salary of €60K, existing pension scheme of €300K, and 15 years of service with his company. He wants to retire at age 60.
The company could make a contribution to a pension scheme on his behalf of up to €82K per annum and receive tax relief on this contribution, and the employee has no liability to benefit in kind tax on the payment.
In addition he can contribute €18,000 by way of an Additional Voluntary Contribution – he will receive tax relief at 41% personally (assuming this is his marginal rate of income tax).
(1) Employer contributions are a very tax efficient manner of funding contributions from your company into your pension scheme.
(2) There is currently a cap of €2.3M on the maximum pension fund that you can accumulate tax efficiently. There is some speculation that this will reduce further in the near future, and perhaps in the coming months. You may wish to consider making further contributions to your pension to avail of this cap before it is reduced.
This is a brief summary of the amounts that you and your company can contribute. There are many other aspects to consider to ensure that you are making your contribution in the most tax efficient way. To ensure that you are availing of all the reliefs granted on your pension contributions please contact your Client Manager or send your query by email to firstname.lastname@example.org
*The information provided in this document does not constitute financial advice and it is provided for information purposes only.
*Each pension fund and the benefits provided from its value, depend on the individual’s own circumstances.
Harvest Financial Services Limited is regulated by the Central Bank of Ireland.