Am I too late to contribute to my pension?

K

KOW

Registered User
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I am 57 yrs of age and am effectively retired on health grounds. My income continue policy gives me two thirds of what my salary would be and also pays into my DC pension up to the age of 60. I can then draw down my pension. At 60 no more payments from insurance company are made.
I am grand financially own own home etc. Should I make additional contributions to my fund even though relief is currently at lower rate.
My thinking is 20% relief tax free growth and can take back 25% tax free in 3yrs time if I choose. Probably not relevant but most probably ARF route at retirement. Any thoughts?
 
Have you worked out what rate of tax you'll be paying on your pension from 60 onwards? If your pension is going to be of sufficient size that you'll be paying at the higher rate of tax, then it's probably not a good idea to pay more in now. Taking 25% tax-free but paying 40% on the rest would be an effective tax rate of 30% which cancels out the benefit of 20% tax relief on contributions.

If your pension is going to be of a size that you'll be tax exempt, then go for it.

If it's going to be taxed at 20%, then it's a small benefit - 25% tax-free lump sum and 20% tax on the other 75% - effectively 15% tax. But don't forget PRSI, USC, charges on pension fund, possible investment fund risk etc.

Regards,

Liam
www.ferga.com
 
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