Leaving to travel - want to backdate contributions & get c. 21% tax back

W

Wheninrome

Guest
Hi

I have been reading a few threads after hearing about some potential tax savings I can make but am still not sure what I need to do so would really appreciate some help. My circumstances are:

1. Having being paying tax at higher rate for the last number of years
2. Leaving work in a just over a month to travel for a year (to get away from the recession!)
3. Have not made any pension contributions to employers AVC scheme
4. I want to maximise the amount of cash i take travelling

My question: Can I make contributions now to the employer scheme (say €20,000), backdate them and claim relief on the contributions for 2008 & 2009 @ c. 41%? Roughly speaking, receive back from revenue c. €8,200. Leave employment and withdraw contribution less 20% which is €16,000. Roughly end up €4,200 better off.

The above is very crude as I believe PRSI comes into it and the above numbers maybe should be grossed up.

Some additional queries are

1. Are the revenue likely to know what i am doing and not give me the refund?
2. Can i tell work to tell the trustees to make sure my cash is invested in cash and not equities to ensure when i go to withdraw the contributions that they have not devalued

Appreciate any kind of help on this.
 
Wheninrome said:
3. Have not made any pension contributions to employers AVC scheme
Click to expand...

So you haven't made contributions to employers AVC scheme. But have you been a member of the employer's pension scheme at all, even on a non-contributory basis?

Is your employer aware that you're leaving in a month?
 
LDFerguson said:
So you haven't made contributions to employers AVC scheme. But have you been a member of the employer's pension scheme at all, even on a non-contributory basis?

Is your employer aware that you're leaving in a month?
Click to expand...

Hi, no I haven't made any contributions yet and am currently not a member of the employer's scheme.

My employer is aware that I am leaving as well...

Thanks
 
Whatever about the legality of trying to do what you suggest, (tax evasion ?) there are other logistical issues you need to be aware of :

  • Set-up costs are charged when joining a scheme and these are automatically deducted from contributions
  • Your P35 for 2008 has probably issued already and would need amending retrospectively
  • With the down-turn in financial markets, your contributions will almost certainly lose value just by "passing through" a pension scheme
  • There may also be redemption costs when leaving a scheme
I can't see how, if it can work at all, it be to your advantage.
 
I've never seen this done before but unless I'm missing something, it's theoretically possible. However, it would require the co-operation of your employer and their pension scheme administrators.

This is how I'd see it happening: -

  • You join the pension scheme now.
  • You make a once-off AVC to the maximum permissible amount for 2008 and 2009.
  • You submit a claim for tax relief and then PRSI relief on the AVC.
  • You leave.
  • Your Leaving Service Options letter gives you the option to withdraw the value of your AVC, less the lower rate tax which is obviously lower than the 41% relief you got.
In theory it should be possible for you to invest your AVC in a Cash Fund to eliminate the possibility of market falls, although entry and exit charges might still apply, as mathepac mentioned.

I cannot see why your employer would facilitate this, given that you're about to leave, unless they're very accomodating.

You should certainly discuss the whole thing with the scheme's professional adviser before proceeding.
 
If you're not a member of the employer's main scheme now, then I can't see the employer agreeing to add you to the scheme for only 1 month, therefore you won't be able to pay AVCs

Even if Employer does allow you to join the main scheme (was membership ever offered to you in the past btw) then there are strict funding checks that need to be performed when making an AVC. As per the Revenue's pension manual:

Employee contributions must be restricted, if necessary, to ensure that the member's aggregate benefits are within approvable limits and that the employer makes a meaningful contribution to the scheme. A funding review and maximum benefits test must take place before any AVC is paid. It is the responsibility of the scheme trustees to ensure that excessive employee contributions are not made. The purpose of any AVC should be made clear to the employee.
 
I have done something similar before with an occupational scheme. I was making monthly contributions for < 2 years. I left the company and got my contributions back less c. 20%, having gotten relief at the higher rate.

Would it be possible to do the same again but this time with a PRSA?
 
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