AVC’s; Revenue limit 115k vs Sal/max % contribution

D

Dadof2

Registered User
Messages
18
Apologies in advance if this was covered before.
I’m seeking some clarification on several points about AVC’s.

An employee aged 48 has a salary of 130kpa and is in a DC scheme. Their employer contributes 10% into the pension while the employee also contributes 10%.

1) As they are in the 40-49 category can the employee make extra AVC’s of max 15%?
2) Are the extra AVC’s capped at Revenue limit? So it’s 15% of 115k NOT 15% of 130k salary?
3) Employer contribution % is not factored in? If employer increased contributions from 10% to 20%, the employee can still make extra AVC’s of 15% here?
4) In monetary value, is 23k being paid into the pension now (employee 11.5k + employer 11.5k based on each paying 10% of 115k)?

Sorry if it’s too direct/simple or confusing for that matter!! (Hope not!) Thought I had a good handle on this but I’m not so sure…

Thanks
 
1) The employer's contribution is independent of the employee - they can make extra contributions to the value of 25%
2) The limit is for all employee contributions (not just AVCs), meaning €28,750 for the year (considering the salary cap of 115k)
3) See above
4) If they both contribute 10% of salary, then the figure is 26k

Based on the above the person should be able to contribute another 15,750 to their pension this year (28,750 - 13,000).
They can also retrospectively max their contribution for last year, if they do so before the filing deadline for 2022 (end Oct / early Nov 2023, check the dates)
 
Ok that’s great, thanks a mill and I appreciate the quick response
 
nest egg said:
1) The employer's contribution is independent of the employee - they can make extra contributions to the value of 25%
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I've always thought that this was unfair.
I'm open to correction, but I'm not aware of any limit on the amount an employer can add to your pension tax free.
 
AJAM said:
I'm open to correction, but I'm not aware of any limit on the amount an employer can add to your pension tax free.
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If it's an Occupational Pension Scheme, there is a limit but it's not a simple percentage of salary. The cost of a maximum pension (2/3 final salary with all bells and whistle options assuming 20 years' service and no other pension funds) is figured out at Normal Retirement Age. The employer cannot put more in than would reasonably be expected to hit this target.

If it's a PRSA, there's no limit on the amount the employer can put in.
 
JimmyB99 said:
Is there a limit on employer contributions for tax relief purposes? Specifically, is the tax relief granted in the year of payment?
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No limit. The Standard Fund Threshold (€2 million) continues to apply. Contributions are an allowable trading expense of the company for tax purposes in the year of payment.
 
JimmyB99 said:
Thanks LD,

That's mad stuff.......are there any whispers about changing this?
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I was very surprised to see it when it was published in the Finance Bill in October. I was convinced it would be changed before it got signed into law in December. But it wasn't. In March, Revenue updated the PRSA chapter in their Revenue Pensions Manual and it now specifically states "There is no limit on employer contributions to an employee’s PRSA. However, the overall standard fund threshold for an individual of €2m applies." (See 24.3 here.)

So it looks like it's here for the foreseeable...
 
The only other limit is that Salary Sacrifice is prohibited, but it always was. So if someone had been on a salary of €100,000, then suddenly the salary drops to €40,000 and simultaneously an employer contribution of €60,000 into a PRSA or pension scheme appears, Revenue won't allow that. They'll treat the €60,000 as if it was an employee contribution.
 
I'd imagine the employer contributions to pension must be a widely used tax shield. Would be very attractive to someone in their 50's with family reared and mortgage cleared to really ramp up pension coming to retirement
 
Of course! But why should that only be available to a tiny minority of people in the position to either pay themselves or negotiate that their employer do it?
 
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