# Contributions to Pension Plan in excess of tax relieved Value?



## Carrolll1000 (24 Sep 2022)

Hi There,

Does anyone know if you can make contributions to your Occupational Pension Fund in excess of the yearly tax relieved value?

I am wondering if this could be away, to hold investments, in a safe place, where you don’t have to pay management fees (my company pay the management fees) and that do not attracted CGT or income tax?

If this is possible, please advise what the cons would be?

Thanks for your help.


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## Clamball (24 Sep 2022)

I have made some additional AVC’s to my 2021 tax return.   Revenue say I have made ~3K more than is permitted for 2021 and that figure will carry forward to 2022.   So it seems they acknowledge the overpayment but will allow the money stay in the AVC fund but only apply the PRSI etc refund in 2022 year end tax assessment.

Now, I am pretty sure I did not make an error, but am in correspondence with revenue about it.  However if I did overpay deliberately or accidentally they will apply the figure in the following year.  

Now, revenue think I made an error, but if you put say 75% of you salary into an AVC instead of the maximum allowed for you age then revenue might take an different approach if they thought you were trying to deliberately investing more than allowed.


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## Gordon Gekko (24 Sep 2022)

It’s not for Revenue to “allow” or “disallow”. You can put as much as you want into the fund. Anything over the limits carries forward and eats into the limits for subsequent years.

The “risk” is that your income dries up and you’ve nothing to get relief against.


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## Sarenco (25 Sep 2022)

Clamball said:


> So it seems they acknowledge the overpayment but will allow the money stay in the AVC fund but only apply the PRSI etc refund in 2022 year end tax


There is no relief from PRSI for pension contributions.

As Gordon says, you can contribute whatever you want to your pension fund - Revenue has no say in the matter. 

However, it rarely makes sense to contribute over and above the maximum tax-relieved limits, baring in mind that any drawdowns are subject to income tax, plus USC, plus PRSI (pre-the year you turn 66).


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## Zenith63 (25 Sep 2022)

I tried with a Zurich Executive Pension a couple of months ago, I was told Revenue are ‘tightening up on it’ so Zurich would only allow me contribute to the tax relieved limits for 2021 and 2022. I didn’t push it though.


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## Brendan Burgess (25 Sep 2022)

Zenith63 said:


> I was told Revenue are ‘tightening up on it’ so Zurich would only allow me contribute to the tax relieved limits for 2021 and 2022.



Quite likely that someone is attributing their own policy to Revenue. 

It probably makes sense for the insurance company to impose the limit because, as Sarenco points out, it's usually incorrect to exceed the limit. 

And the insurance company might face a claim from the customer at some later stage. The customer would be unlikely to win, but it would use up a lot of resources explaining it to the Ombudsman.

Brendan


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## jasdpace@gmail. (25 Sep 2022)

Sarenco said:


> As Gordon says, you can contribute whatever you want to your pension fund - Revenue has no say in the matter.



This is simply not what the Revenue Manual says, per below.

3.7 Limits on contributions Employee contributions must be restricted, if necessary, to ensure that the member's aggregate benefits are within approvable limits and that the employer makes a meaningful contribution to the scheme (see Chapter 4.1).* A funding review and maximum benefits test must take place before any Additional Voluntary Contribution (AVC - see definition in Chapter 23.2) is paid. It is the responsibility of the scheme trustees to ensure that excessive employee contributions are not made.* The purpose of any AVC should be made clear to the Tax and Duty Manual Pensions Manual – Chapter 3 8 employee. Please see Chapter 5.7 for the standard methodology for funding and benefit calculations.


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## nest egg (25 Sep 2022)

jasdpace@gmail. said:


> ...*It is the responsibility of the scheme trustees to ensure that excessive employee contributions are not made.*


Does the above apply to executive pensions too?


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## jasdpace@gmail. (25 Sep 2022)

Indeed it does - so-called "executive" pensions are a sub-set of occupational pension schemes and the quoted para applies to all occupational pensions.

[By the way, the test is a bit bonkers but I don't have time to elaborate.]


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## Gordon Gekko (25 Sep 2022)

Those Revenue limits you’re referring to are enormous.

The more relevant constraint is usually the €2m Standard Fund Threshold.

I put €28,750 into my scheme each year but the point is that if, let’s say, markets fell by 40%, there might be merit in me lobbing €100,000 in there if I had it available.


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## jasdpace@gmail. (25 Sep 2022)

Hi Gordon,

Firstly, let's acknowledge that I was simply correcting the incorrect statement highlighted.

Secondly, these allowable funding limits can bite - say in the case of a public sector worker with a certain profile, i.e. hundreds of thousands of workers.

Thirdly, it is true that these tests, which I described as a bit bonkers, may be a complete waste of time to many, many thousands more.


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## nest egg (25 Sep 2022)

jasdpace@gmail. said:


> Indeed it does - so-called "executive" pensions are a sub-set of occupational pension schemes and the quoted para applies to all occupational pensions.
> 
> [By the way, the test is a bit bonkers but I don't have time to elaborate.]


I understood one of the benefits of an EP is that effectively there's no limit in terms of what can be contributed?


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## Gordon Gekko (25 Sep 2022)

nest egg said:


> I understood one of the benefits of an EP is that effectively there's no limit in terms of what can be contributed?


At a very high level, it’s a function of the size of fund required to deliver a pension equal to 2/3 of final salary.

Which is a pretty big number in most cases.


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## Conan (25 Sep 2022)

nest egg said:


> I understood one of the benefits of an EP is that effectively there's no limit in terms of what can be contributed?


No. Revenue rules state that you cannot fund for benefits in excess of the benefit limits, ie a pension of 2/3rds your Final Salary (including a level of indexation in retirement and a spouses pension on your death in retirement). Obviously if you have a high salary, then the fund limit will be high (though a fund value in excess of €2.15m will be hit with the Excess of Fund Tax).


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## lawoman (2 Oct 2022)

Conan said:


> No. Revenue rules state that you cannot fund for benefits in excess of the benefit limits, ie a pension of 2/3rds your Final Salary (including a level of indexation in retirement and a spouses pension on your death in retirement). Obviously if you have a high salary, then the fund limit will be high (though a fund value in excess of €2.15m will be hit with the Excess of Fund Tax).


This has probably being asked before but;
Is the Revenue limit always two thirds of final salary ? How would this be calculated where someone would qualify for a full public sector pension ( class D1 PRSI and max service ) and also have non pensionable income such as farming ?


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## Conan (2 Oct 2022)

The Revenue limit is 2/rds from employment.  But if the individual has other self-employed income then they can fund benefits (via a PRSA) on that income. The level of contributions qualifying for tax relief on that income is dependent on age.


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## lawoman (2 Oct 2022)

Conan said:


> The Revenue limit is 2/rds from employment.  But if the individual has other self-employed income then they can fund benefits (via a PRSA) on that income. The level of contributions qualifying for tax relief on that income is dependent on age.


So if we were to take an example of someone earning 40k from a public sector job and 1k from farming , aged in the late fifties how much could they contribute ? 
35 per cent of 41k ?


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## Conan (2 Oct 2022)

lawoman said:


> So if we were to take an example of someone earning 40k from a public sector job and 1k from farming , aged in the late fifties how much could they contribute ?
> 35 per cent of 41k ?


No.
It's a percentage of earnings from that farming role.  So 35% of €1k.
But you might have some very limited scope to invest AVC's under the Public Service scheme.


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## lawoman (2 Oct 2022)

Conan said:


> No.
> It's a percentage of earnings from that farming role.  So 35% of €1k.
> But you might have some very limited scope to invest AVC's under the Public Service scheme.


Agreed on the first paragraph 

Why would it only be very limited scope as regards the public sector scheme ? If Revenue are OK with the provision of a pension up to two thirds of final salary and the Public sector pension is capped at one half of final salary, is there not significant scope to put funds into a pension ?


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## Conan (3 Oct 2022)

lawoman said:


> Agreed on the first paragraph
> 
> Why would it only be very limited scope as regards the public sector scheme ? If Revenue are OK with the provision of a pension up to two thirds of final salary and the Public sector pension is capped at one half of final salary, is there not significant scope to put funds into a pension ?


The typical Public Sector scheme for someone with full service provides :
- a pension of 50% of Salary, plus
- a lump sum of 150% of salary
Combined, that’s equivalent to a pension of 2/3rds of salary. If you have any non-pensionable income from the Public Service (overtime, allowances, BIK etc) you could fund benefits based on these through AVC’s.


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## lawoman (3 Oct 2022)

Conan said:


> The typical Public Sector scheme for someone with full service provides :
> - a pension of 50% of Salary, plus
> - a lump sum of 150% of salary
> Combined, that’s equivalent to a pension of 2/3rds of salary. If you have any non-pensionable income from the Public Service (overtime, allowances, BIK etc) you could fund benefits based on these through AVC’s.


Thanks for that information . Would you know what happens to contributions that have been made to a fund where they shouldn’t have been made ( or at least not to the level that they were made ) . Presumably the income tax relieved would have to be repaid but when does this happen ? . Is it when the error is discovered or does it have to wait until retirement date ?


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## Mr Black (11 Oct 2022)

I would also be interested in how this works, when does the tax have to be repaid? Now or when drawing down my pension?

I feel from reading all the excellent threads that I may also be inadvertently oversubscribed in my PRSA AVC due to what now looks to be poor advice from my husbands accountant (he's self employed, I'm a HSE employee). I have ~5 years to retirement @ age 60,  'D' Class PRSI. I do have a rental property but my understanding is that this cannot be used to calculate my pension as it is ''unearned'' ( what a joke!).

I have been trying to get a projected pension from HSE superannuation for over a year at this stage but they are snowed under so nothing forthcoming...

What do I need to do now?


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## bstop (12 Oct 2022)

It's unlikely that you will owe any tax back.

You can make extra AVCs because the revenue allowable pension for a widow's or widowers pension is 50% of the workers wages. The public sector pension schemes only allow 25% pension for widow's or widowers pension. You would need a fund of several hundred thousand euro to fund for the shortfall of 25%. If your AVCs are less than that you will not be over funded. You can have your full pension benefits from your public sector scheme and any remaining AVCs can be used to purchase an ARF or Annuity.


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## Gordon Gekko (12 Oct 2022)

I thought the State Pension forms part of a public sector worker’s benefits, so you can fund for that also through AVCs, no?

e.g. someone’s on €100k, so with full service gets a pension of €50k, which includes the State Pension of €13k, so crudely speaking you can build an AVC pot of circa €400k to cover that.

Is that broadly correct?


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## jasdpace@gmail. (12 Oct 2022)

Mr Black said:


> I have been trying to get a projected pension from HSE superannuation for over a year at this stage but they are snowed under so nothing forthcoming...



That's a disgrace, albeit unsurprising that the HSE's internal service delivery to staff is as inefficient as its core service to patients.

Anyway, it looks very likely that your husband's accountant has not got you involved in an over-funded situation.


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## NoRegretsCoyote (12 Oct 2022)

Gordon Gekko said:


> e.g. someone’s on €100k, so with full service gets a pension of €50k, which includes the State Pension of €13k,


Strictly speaking for post-1995 entrants it doesn't "include" but rather it is "integrated". So the worker gets a notional 50% of final salary which is reduced by whatever the SPC entitlement is. So PS pension element plus SPC=50% of final salary.

On the tax treatment I assume only the PS pension element is considered.


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## Mr Black (12 Oct 2022)

Thanks for your replies everyone, I can exhale now as I thought I was facing an unexpected tax bill. My PRSA AVC is < €100K... As a 'D' Class PRSI (started work in 1990) my pension is not integrated with the state pension. 
I will be short ~ 2 years full pension @ age 60 due to job sharing years ago. 
My understanding of my PRSA AVC pot is that initially it is used to fund any shortfall in my allowable tax free lumpsum of 150% of final salary.
Then if the balance is used to purchase an Annuity or an ARF (as I can fund the additional 25% shortfall of the widower's pension, thanks @bstop) can the income from the ARF/ Annuity be drawn down in my lifetime or does the draw down have to wait until after I die, assuming my husband outlives me? We have no dependents. 

Apologies if that is confusing, it reflects my mind at present thinking about pensions/finance. I have spent my working life caring for patients and my pension horizon is looming and I have limited knowledge as to how it all works..


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## bstop (12 Oct 2022)

You can drawdown from your ARF or Annuity as soon as you receive the benefits from your occupational pension. i.e. age 60.
If you opt for an ARF and start drawdowns at age 60 you would gain 6 years of paid S class Prsi contributions. These are reconable for the contributory state pension. If you have 260 paid contributions you can qualify for a pro rata contributory pension at age 66. If you have 520 paid contributions you can qualify for the normal contributory pension. You should check your Prsi record at welfare.ie as you probably have A class contributions for your period pre establishment. S class paid contributions can also allow.you to qualify for the Benefit payment for 65 year olds.


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## Mr Black (12 Oct 2022)

Thank You so much @bstop, that is valuable information.


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## jasdpace@gmail. (12 Oct 2022)

Apologies if I'm getting this wrong.......but I was under the impression that there was a time that if you opted for a Tax Free Lump Sum (TFLS) based on income and service, any residual AVCs needed to be used to purchase an annuity (in contrast to someone whose TFLS was based on 25% of his pension fund).

1. Was this the case?
2. Is it still the case?

As in - if it is still the case, then the post of @bstop is not quite accurate/complete?


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## bstop (12 Oct 2022)

AVCs can be used to purchase an ARF by people in both the cases you mention.
My post is fully accurate.


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