Lump Sum AVC payment

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GettingOn

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I'm looking to make a lump sum AVC payment to my company pension scheme, based on the following understanding.

I have until Oct 31st 2022 (or Nov 16th if filing tax return online) to make a lump sum AVC payment, to take income tax relief available for the 2021 tax year. While I understand that given my age at the end of 2021 I can make total pension contributions of up to 35% of salary, made up of regular contributions and the AVC lump sum, my question is around the salary calculation to start from.

In 2021 I started working for a new company on Sept 1st and I’m not sure if this impacts on the AVC Lump Sum I can now pay to maximise tax relief as listed above.
Making up some numbers, the following is the kind of scenario I have:

Company 1 (Jan 1st to Aug 31st 2021): I earned €48,000, and made 5% pension contributions to Company 1 pension plan
Company 2 (Sep 1st to Dec 31st 2021): I earned €24,000, and made 5% pension contributions to Company 2 pension plan

My only pension open for contributions today is with Company 2, so my question is whether I base my calculations for AVC payment off full year earnings for 2021: €72,000, or off just my Company 2 earnings for 2021 which was €24,000?

Perhaps I'm overthinking this and it's calendar year based, once in any pension scheme in place across the full year, rather than individual company based, but would appreciate advice.
 
You can no longer make pension contributions in respect of company 1. You had to make AVC contributions when you were an employee of the company. Once you leave, you cannot make contributions in respect of those earnings again.

It is a stupid rule that doesn't have any logic to it.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
You make the AVC contribution to your AVC or DB scheme based on your 2021 gross wages from both companies. Your scheme is probably with Irish Life or aviva or Zurich or similar so you can log in yourself and make the pension contribution.

Then complete your 2021 tax return on revenue online with proof of payment of AVC and revenue will refund you the tax on the AVC contribution. All revenue look at is gross pay, your age, how much pension contributions you have paid already through payroll which have the tax relief applied and then they figure out the tax relief due and sent it to your bank account. It does not bother them that you changed employer.
 
Clamball said:
You make the AVC contribution to your AVC or DB scheme based on your 2021 gross wages from both companies. Your scheme is probably with Irish Life or aviva or Zurich or similar so you can log in yourself and make the pension contribution.

Then complete your 2021 tax return on revenue online with proof of payment of AVC and revenue will refund you the tax on the AVC contribution. All revenue look at is gross pay, your age, how much pension contributions you have paid already through payroll which have the tax relief applied and then they figure out the tax relief due and sent it to your bank account. It does not bother them that you changed employer.
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revenue do care that you changed employment as they won’t give tax relief. Also as a defferred member the pension company won’t accept the money
 
Sorry, I was talking about putting it into his current AVC scheme if he has one in his new employment.

You are right revenue says. “You might have more than one source of income. If you do, this relief is only from the source of income in respect of which the contributions are made”,

but it does not say that you have to pay a lump sum into an AVC scheme run by each specific employee.
 
Steven Barrett said:
It is a stupid rule that doesn't have any logic to it.
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It does seem to be unfair.

You'd know more than me but intuitively it would make sense that you could only contribute AVCs to the Company 2 Scheme in respect of Company 2 earnings. How could the trustees for the Company 2 Scheme factor in earnings from previous employments etc?

Oisin19 said:
revenue do care that you changed employment as they won’t give tax relief.
Click to expand...

What is the basis for disallowing tax relief on pension contributions to a PRSA before Oct 31 (or the ROS deadline) in connection with the earnings from Company 1? Is it the following section from the PRSA manual?

"Tax relief is allowed against “relevant earnings’’, which means earnings from a trade, profession, office or employment (section 787B Taxes Consolidation Act 1997 (TCA)). However, an individual who is a member of an approved scheme or a statutory scheme (other than a scheme which is limited to the following benefits – death in service gratuity, pension to surviving spouse, civil partner, children or dependants) may, in relation to her/his income from the office or employment, only claim relief in respect of additional voluntary contributions (AVCs) to a PRSA."

Assuming the OP makes the maximum AVC to the Company 2 scheme before the end of October based on the advice above on their Company 2 earnings only (i.e. (35% - 5%) x €24k), can they open a regular PRSA (as this is available regardless of job or employment status) and make a contribution of 30% of their 2021 earnings from the Company 1 employment (i.e., €14,400) before Oct 31 and claim tax relief via their tax return or MyAccount?

The income from the Company 1 employment was earned income and presumably relevant earnings for tax relief for a contribution to a PRSA.

I know they lose the flexibility of the AVC for funding lump sums (other than the 25% they'd get on the stand alone PRSA) and early retirement which they'd receive on AVCs to a main scheme or PRSA AVC.

Or is it only the self-employed and employees with AVCs to a main scheme (if that option exists) or PRSA AVC from their current employment that have this flexibility to back date a contribution?

As far as my understanding goes, a self-employed person could open a PRSA today and make a contribution before Oct 31 and claim relief on 2021 relevant earnings. They could have worked as a painter for six months and a plumber for six months and presumably pension contributions from those earnings qualify for tax relief if paid before Oct 31 and relief claimed before Oct 31?

It would seem harsh if the tax relief for the employee with the work pattern above would be disadvantaged and lose out on tax relief for 2021.
 
AAAContributor said:
It does seem to be unfair.

You'd know more than me but intuitively it would make sense that you could only contribute AVCs to the Company 2 Scheme in respect of Company 2 earnings. How could the trustees for the Company 2 Scheme factor in earnings from previous employments etc?
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Yes, an AVC can be made in relation to their current employment in Company 2. You are not allowed to contribute in relation to income earned in another company.

AAAContributor said:
What is the basis for disallowing tax relief on pension contributions to a PRSA before Oct 31 (or the ROS deadline) in connection with the earnings from Company 1? Is it the following section from the PRSA manual?

"Tax relief is allowed against “relevant earnings’’, which means earnings from a trade, profession, office or employment (section 787B Taxes Consolidation Act 1997 (TCA)). However, an individual who is a member of an approved scheme or a statutory scheme (other than a scheme which is limited to the following benefits – death in service gratuity, pension to surviving spouse, civil partner, children or dependants) may, in relation to her/his income from the office or employment, only claim relief in respect of additional voluntary contributions (AVCs) to a PRSA."

Assuming the OP makes the maximum AVC to the Company 2 scheme before the end of October based on the advice above on their Company 2 earnings only (i.e. (35% - 5%) x €24k), can they open a regular PRSA (as this is available regardless of job or employment status) and make a contribution of 30% of their 2021 earnings from the Company 1 employment (i.e., €14,400) before Oct 31 and claim tax relief via their tax return or MyAccount?

The income from the Company 1 employment was earned income and presumably relevant earnings for tax relief for a contribution to a PRSA.

I know they lose the flexibility of the AVC for funding lump sums (other than the 25% they'd get on the stand alone PRSA) and early retirement which they'd receive on AVCs to a main scheme or PRSA AVC.

Or is it only the self-employed and employees with AVCs to a main scheme (if that option exists) or PRSA AVC from their current employment that have this flexibility to back date a contribution?

As far as my understanding goes, a self-employed person could open a PRSA today and make a contribution before Oct 31 and claim relief on 2021 relevant earnings. They could have worked as a painter for six months and a plumber for six months and presumably pension contributions from those earnings qualify for tax relief if paid before Oct 31 and relief claimed before Oct 31?

It would seem harsh if the tax relief for the employee with the work pattern above would be disadvantaged and lose out on tax relief for 2021.
Click to expand...
It is harsh, but once the OP left Company 1 they cannot make pension contributions in relation to their earning in Company 1. You cannot make pension contributions to a PRSA when they were in pensionable employment.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Clamball said:
You make the AVC contribution to your AVC or DB scheme based on your 2021 gross wages from both companies. Your scheme is probably with Irish Life or aviva or Zurich or similar so you can log in yourself and make the pension contribution.

Then complete your 2021 tax return on revenue online with proof of payment of AVC and revenue will refund you the tax on the AVC contribution. All revenue look at is gross pay, your age, how much pension contributions you have paid already through payroll which have the tax relief applied and then they figure out the tax relief due and sent it to your bank account. It does not bother them that you changed employer.
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Pension contributions cannot be made in respect of company 1.

When you change employment during the year, it is very clear on your earnings summary. I think the Revenue will have all that information to hand and see that you are making contributions in respect of illegible employment.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Apologies I got it so wrong. It does seem illogical that there is no straightforward way to make an AVC payment.

Is it revenue that does not allow it or the employer AVC scheme?
 
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