# Pension Tax Relief Limits and Employer Contributions



## Alkers86 (20 Dec 2019)

The amount of tax relief you can get on pension contributions as per this page:








						Tax relief on contributions
					

The amount of tax relief you can get on your own contributions to a pension depends on your age...



					www.pensionsauthority.ie
				




Do employer contributions contribute to this?

I.e. I am between 30 and 40 and currently I put 12% into my pension and my company puts 8% in. Can I increase my contributions to 20% and still get tax relief?

Thanks


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## LDFerguson (20 Dec 2019)

Alkers86 said:


> The amount of tax relief you can get on pension contributions as per this page:
> 
> 
> 
> ...



If your company's arrangement is an Occupational Pension Scheme, then yes you can.  If your company's arrangement is a PRSA then no you can't as Employer Contributions to PRSAs are included in the 20% limit.  

Regards, 

Liam
www.ferga.com


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## RedOnion (20 Dec 2019)

Is it a PRSA or occupational pension?


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## Alkers86 (20 Dec 2019)

Occupational pension from a large multi-national employer


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## Conan (20 Dec 2019)

A PRSA is a specific one member plan.
An “Occupational Pension “ is one established by an Employer, with Trustees, typically for a group of Employees. Though it can also include a one-member arrangement such as an Executive Pension.


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## Mechman (27 Dec 2019)

I wasn’t aware of this. 

I’m in a company scheme, but I had assumed the employers contribution counted towards the total. Seems I can increase my contributions by 5% straight away as that’s what my employer is contributing.


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## irbx (27 Dec 2019)

Mechman said:


> I wasn’t aware of this.
> 
> I’m in a company scheme, but I had assumed the employers contribution counted towards the total. Seems I can increase my contributions by 5% straight away as that’s what my employer is contributing.



I am also in the 30 to 39 Bracket and pay 20% of Base Salary in to my pension. My employer pay 5% as well. 
I maximise relief on overtime and Bonus each year by paying in 20% of this as well in Jan for the previous year.


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## Oisin19 (28 Dec 2019)

Mechman said:


> I wasn’t aware of this.
> 
> I’m in a company scheme, but I had assumed the employers contribution counted towards the total. Seems I can increase my contributions by 5% straight away as that’s what my employer is contributing.



you just have to ensure that the new higher level of contributions keep you within the overall funding limits for your pension scheme. This shouldn't be an issue but worth clearing it with the trustee before increasing your contributions.


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## Zenith63 (28 Dec 2019)

I’ve often wondered how many people are actually aware they could be negotiating pay increases into increased employer contributions instead, saving themselves and the company PRSI/USC, increasing what they can get into their pension etc. It does not seem to be widely known by employees.


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## Paul O Mahoney (29 Dec 2019)

Zenith63 said:


> I’ve often wondered how many people are actually aware they could be negotiating pay increases into increased employer contributions instead, saving themselves and the company PRSI/USC, increasing what they can get into their pension etc. It does not seem to be widely known by employees.


Didn't think you could save PRSI/USC on pension contributions now. ?


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## Gordon Gekko (29 Dec 2019)

Paul O Mahoney said:


> Didn't think you could save PRSI/USC on pension contributions now. ?



There is no PRSI or USC in respect of an employer pension contribution.

e.g. a €10k employer contribution costs the employer €10k (ignoring corporation/income tax deductibility).

But €10k of salary leads to almost €1,100 of Employer PRSI. And then PRSI and USC for the employee even if they contribute €10k to their pension.


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## Paul O Mahoney (29 Dec 2019)

I'm confused,  ER Prsi is 10.75% of gross salary of an employee.  If the Employer  contributes to a pension it's a p&l charge,  we used to call it "burden" .

Where does the Prsi/ USC saving  come in, as they are individual charges against income ie the Employee, who can't reduce PRSI/USC by making pension contributions. 

Again I'm only asking


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## Gordon Gekko (29 Dec 2019)

It’s a fair question. The point the contributor was making is that an employee might be better served negotiating an employer pension contribution rather than a salary increase.


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## Paul O Mahoney (30 Dec 2019)

Gordon Gekko said:


> It’s a fair question. The point the contributor was making is that an employee might be better served negotiating an employer pension contribution rather than a salary increase.


But that would simply add to costs and decrease profitability. Additionally it would mean that the Employee never gets any additional income in order to save, buy a home. 
It's a double edged sword I know, I like the idea, but it simply doesn't work. 

What might work is a 50/50 split in that the ER sets aside a % of equity,  and the employee becomes a shareholder/stakeholder/ part owner of the company takes 50% reduced increase but has the other 50% invested in the company,  now there aren't any financial costs involved. A dividend can be paid out tax free once its reinvested and the Employee increases his/her stake,  but more importantly now has skin in the game.  Might Flop but might also be a roaring success.  

This isn't an share option type scheme this is ownership


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## RedOnion (30 Dec 2019)

Paul O Mahoney said:


> It's a double edged sword I know, I like the idea, *but it simply doesn't work*.


You're over complicating this.

I earn over 115k, so I've reached threshold where I can make additional pension contributions. I'm mortgage free, and I don't need additional cash flow. 

Say I'm due a 10k pay rise.

Option 1. I get pay rise. 
ER pays 10k, and ER PRSI. (Expense 11k)
I pay PRSI, USC, and income tax. (Net cash c.4.6k)

Option 2. ER doesn't give pay rise, but increases ER contribution to pension by 10k.
ER pays pension. No ER PRSI (Expense 10k).
I pay nothing. Net cash 0. My pension increases by 10k.


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## Gordon Gekko (31 Dec 2019)

Paul O Mahoney said:


> But that would simply add to costs and decrease profitability



How so?

It actually does the opposite; both are deductible for corporation tax purposes. Take a €10k employer contribution. It costs the employer €8,750 net of tax. €10k of salary, on the other hand, gives rise to a PRSI charge, so that’s €9,691 net of tax.

I agree with RedOnion’s point regarding someone who’s at or above the €115k salary level. But even take someone who’s not:

Say I’m on €80k a year and contributing €10k a year to my pension. It’s effectively costing me €6k of net income foregone to do so. Next time there’s an enhancement to my total remuneration up for grabs, why wouldn’t I look for a €10k employer pension contribution rather than a €10k salary increase? I could then stop contributing €10k myself, freeing up €6k of cashflow for myself. Whereas a €10k salary increase will only yield €4,800 of after-tax income.

The whole exercise is essentially an arbitrage around PRSI/USC; people do need to be mindful of the rules around ‘salary sacrifice’ though.


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## Paul O Mahoney (31 Dec 2019)

Gordon Gekko said:


> How so?
> 
> It actually does the opposite; both are deductible for corporation tax purposes. Take a €10k employer contribution. It costs the employer €8,750 net of tax. €10k of salary, on the other hand, gives rise to a PRSI charge, so that’s €9,691 net of tax.
> 
> ...


I get it now but I wonder what Revenue would say it doesn't sound like something that they would sanction. Its effectively denying them of income tax, EE and ER Prsi plus USC .
They might/ will claw it back with taxation on pensions but that would be in many cases decades away.


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## RedOnion (31 Dec 2019)

Paul O Mahoney said:


> I wonder what Revenue would say


That's where salary sacrifice comes in. There's lots of revenue guidance on the topic - section 118B of the TCA if you want to read up on it.

I can't actually do the above, because I can't show a bone fide contract change, so it would be deemed a salary sacrifice and I would be taxed in it.


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## Paul O Mahoney (31 Dec 2019)

RedOnion said:


> That's where salary sacrifice comes in. There's lots of revenue guidance on the topic - section 118B of the TCA if you want to read up on it.
> 
> I can't actually do the above, because I can't show a bone fide contract change, so it would be deemed a salary sacrifice and I would be taxed in it.


Thanks I will, never knew of such a thing.


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## aristotle (31 Dec 2019)

I was due a bonus previously and asked my employer would they just put it into my pension and I was told the same thing, it would be deemed a salary sacrifice so it wasn’t an option.


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## Zenith63 (1 Jan 2020)

aristotle said:


> I was due a bonus previously and asked my employer would they just put it into my pension and I was told the same thing, it would be deemed a salary sacrifice so it wasn’t an option.


I’d imagine that would be a very clear case of salary sacrifice to Revenue.

Worth speaking to your accountant though to plan for next time. My understanding is that bonuses can  indeed go through as ER contributions, I’d guess it’s just a matter of formally agreeing it in your contract negotiation next time around.


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