Is pension money taxable?

T

Techie

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Hi All,

Is pension money taxable? If so, what's the point in saving it for future only to pay the normal tax monies. In next 10/20 years inflation would go up and the money value may not be the same as what we save today? Instead would it make sense to invest in something (Property, Bonds, Stocks) to get them growing over the time?

Just trying to understand the real benefit of pension. Any advise is appreciated.

Thanks,
Techie
 
Pension income is taxable.

People over 65 get three tax reliefs that those under 65 don't get.

One of these is that they don't pay any income tax if earning less than 18/36k.

So it's likely your effective tax rate will be much lower than when working.
 
Firstly, the majority of funds placed into pensions are done so with the benefit of marginal tax relief. So for every 100 put into a pension fund, it costs you roughly 60. This will grow without any tax paid on it while it remains in the fund.

When you retire, you are enjoy a tax free lump sum and also pay tax based on the level of drawdown. You have to assume (unless you have lots of other income earning assets), you will avail of some of it at the standard level of taxation.

If you wish to be strategic, build a pension only to the maximum tax free drawdown and the standard rate of taxation of ~36k => pension pot of roughly 1 million euro !!

The tax on investment assets outside a pension fund are pretty high in Ireland - roughly 40% + PRSI on some of them.
 
The tax benefits attached to pension funding are as follows:
- you get tax relief at your marginal rate on any personal contributions. So if you are currently a 40% tax payer, then every €100 you invest actually “ costs” you €60
- the pension fund grows tax free, no tax on any capital growth or income generated whilst in the accumulation phase (ie gross roll-up).
- when you eventually get to retirement, you can take part of the fund as a tax-free lump sum (currently either 25% of the fund or up to 150% of Salary).

Any pension income may be liable to Income Tax in retirement, but obviously if it’s below the tax threshold it may not be liable for tax or may only be liable at the lower rate (currently 20%).
If you invest contributions outside of the pension structure, you get no tax relief on the contributions and you will be liable to Capital Gains Tax (on any gains) or Income Tax ( on any income generated).
 
Just to clarify

"you can take part of the fund as a tax-free lump sum (currently either 25% of the fund or up to 150% of Salary)."

there is a maximum allowed amount of 200k................. between 200k and 500k you pay 20%
 
Correct, up to €200k is tax free and next €300k is taxable at 20%. But remember that if you are taking a lump sum of over €200k (Fund of over €800k) you will likely be heading for a pension tax rate of 40%.
 
Am I correct in saying that the Universal Social Charge is another tax payable on your pensions income?

From what I gather, standard USC rates are still applicable until you turn 70 years old, so not in line with minimum qualfying state pension age, then after 70 years old it drops to 0.5% up to 12,012 (unless your total income is less than 13,000, then it's zero), and 2% between 12,012 and 60,000.

After 60,000 I assume it reverts back to the normal standard rates.

Maybe one day USC will be phased out completely (along with the tv license, yeah right) but it's still another slice of your pie.

(Ps, doesn't autocorrect work on this website?)
 
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