# PAYE worker approx €43k gross. Tax saving question.



## RichInSpirit (31 Aug 2018)

Apologies in advance for asking probably silly pension questions but here goes anyway!
On approx €43k gross salary per annum.
I have already a fair amount of financial commitments, mostly repaying debt most of which is historic from previous endeavors.
I've never really looked at the tax saving angle of paying into a private pension before so i'm a bit of a green horn in this regards.
Hope to talk to some pension advisors/brokers in the next few weeks and I want to be sure of what I can afford to pay into a pension etc.
Looking at Revenue's information page I fall into the 40-49 age bracket which says 25% tax relief for that bracket on gross salary. 
My back of envelope calculation makes that €10750 relief on income tax.
I can't afford to pay that much per annum but am I right in assuming that I could save €10750 in tax if I could or is there something here that i'm not seeing ?


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## moneymakeover (31 Aug 2018)

You're allowed to put  €10750 into a pension.

This is from your gross salary.

Your saving is the tax you would have paid in the  €10750.

The only downside is you have to wait until you retire to get your hands on the money.


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## RichInSpirit (31 Aug 2018)

Thanks for your swift reply.
So do you subtract €10750 from €43000 and you pay tax on the remainder?


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## Gordon Gekko (31 Aug 2018)

Not quite.

Let’s say you’re single and on €43k a year.

You only pay higher rate (i.e. 40%) tax on circa €8k, so it tends not to make sense to contribute more than that. That’s because the first circa €35k a year falls within the 20% rate band.

You have affordability issues, so let’s say you contribute €5k. The tax on that would be €2k (i.e. 40% of €5k) so that the tax relief that your €5k contribution triggers.

There is no relief from USC or PRSI.


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## RichInSpirit (31 Aug 2018)

Thanks Gordon but i'm still not 100% sure of the figures.
Say for illustration purposes I could afford the €8000.
40% of €8000 would be €3200. Would that be the tax saving by paying the €8000?


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## Gordon Gekko (31 Aug 2018)

It would indeed.


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## RichInSpirit (31 Aug 2018)

So the €10750 figure from the 25% of €43000 is just the maximum tax free allowed amount, it's not the actual tax saving


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## RichInSpirit (31 Aug 2018)

Thanks Gordon.


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## RichInSpirit (31 Aug 2018)

Just for illustration purposes going a step further €10750 minus €8000 = €2750 would be taxed at 20% = €550
So a total tax saving of €3200+€550 = €3750 by paying €10750 into a pension.


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## Gordon Gekko (31 Aug 2018)

RichInSpirit said:


> So the €10750 figure from the 25% of €43000 is just the maximum tax free allowed amount, it's not the actual tax saving



It’s just the maximum amount on which you can get tax relief for the relevant year.


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## RichInSpirit (31 Aug 2018)

Right O I think I understand now !


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## RichInSpirit (31 Aug 2018)

Thanks very much Gordon and moneymakeover


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## RichInSpirit (12 Sep 2018)

Back again. Met a broker last week but haven't bit the pension bullet yet.
Having a look at _theoretical _numbers in a spreadsheet at the moment.
Taking an exaggerated gross income (for me anyway!) of €115000 for someone in the 40 49 year bracket 25% of gross salary is €28750 but higher rate PAYE tax looks like being €32180, so it looks like the tax relief is not available on the whole higher rate tax Payment?


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## Gordon Gekko (12 Sep 2018)

No, you’re confused again.

It’s not the tax payable figure you look at, it’s the taxable income.

For a single person on €115,000 a year, circa €80,000 of their salary is taxed at the higher rate. For a 40 year old, it’s €28,750 that comes of that so €80,000 gets hit with USC and PRSI but €28,750 does not get taxed at 40%.


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## RichInSpirit (15 Sep 2018)

Thanks Gordon !
I might have worded that last question a bit wrong.

Can I ask another couple of questions?
At the other end of the pension the general retirement age is 65, but there is talk of the state retirement age being raised to 68, can you also leave a private pension run until age 68? Or do you have to access when 65?

Also you can take a lump sum of 25% of the pension tax free at retirement age, with a couple of options available for the rest.
But it's my understanding that you can take a 100% lump sum but it would be taxed at the higher rate, 40%. Is this a correct assumption?


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## Gordon Gekko (15 Sep 2018)

Yes, you can leave a private pension untouched to age 68 also.

Usually the options are 25% lump sum and ARF or 1.5 times final salary plus annuity.

The lump sum is capped at 25%. Beyond that, accessing funds gets hit with marginal rate tax, PRSI, and USC (PRSI ceases at age 66).


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## RichInSpirit (19 Sep 2018)

Thanks Gordon for all the help.


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