Low Pension - Can I use other funds?

T

ThisisMax

Registered User
Messages
168
Hi,
I have been in chronic pain for a few years which has limited my ability to contribute to my pension (self employed).
I recently had a surgical procedure which makes things a little easier hopefully but I am playing catch up. I know the rules for % contribution by age and this year I turn 50.
Currently make a small salary which covers everything but no pension extra.
My question: I have rent a room income of €14000 a year which is available. Also my parents in law kindly give myself & my wife the €3k gift every year each- can these both be counted as 'income' or are pension contributions meant to come from 'work' income? If I could use some of either of these it would really help my pension a lot.
Thank you.
 
Hi Max

You are not taxed on the rent a room or the gift, so they are not counted as income for tax purposes.

If you do not have a taxable income, then there is no point in making pension contributions.

If you have a taxable income you can set pension contributions against it. It does not matter where the cash comes from.
 
Neither can be used as income as they are not deemed "earned income".

When you think about it, you are receiving tax free income of €17,000 a year. How could you be allowed to make pension contributions on this income and claim tax relief on them, getting a possible €6,800 from income you don't pay tax on?
 
If you are taxed at 20%, you might be better off holding off making contributions until you are paying 40% tax as you would then be getting more tax relief.

Don't worry about not maxing your contributions. The percentages allowed are very high.

Brendan
 
You can put them into your pension fund, but you will not get tax relief on the contributions as this is limited to a % of your earnings from employment based on your age
 
I don't know thats why I asked the question.
 
jpd said:
You can put them into your pension fund, but you will not get tax relief on the contributions as this is limited to a % of your earnings from employment based on your age
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OK. Thats probably what I meant. If my income is not high enough to give me 40% tax rate then I wont get tax relief on the pension contributions I make (up to my limits/ age) but I can still contribute without tax relief? Even without tax relief its still better to invest in pension than save? Saving wont beat inflation?
 
OK. So if I discount the rent a room and take my income - less than 30K last year as earned income I could contribute something.
 
"Saving won't beat inflation" depends on what you put your savings into - certainly a cash or savings account won't but if you save in an investment account and invest the money into diversified shares it is likely to beat inflation
 
jpd said:
"Saving won't beat inflation" depends on what you put your savings into - certainly a cash or savings account won't but if you save in an investment account and invest the money into diversified shares it is likely to beat inflation
Click to expand...
Thanks. I have an appt with a pensions guy this week so hopefully more info.
 
Hi Brendan. If I increased my salary to 50K per year I could then put approx €15k of this (30%) into pension every year from age 50. So this could come from the rent a room if I saved it or the 3k? The rent a room and 3K gift are not counted as income but could be used to pay my pension?
 
ThisisMax said:
Even without tax relief its still better to invest in pension than save? Saving wont beat inflation?
Click to expand...

The inflation issue is not relevant to whether your savings are in a pension fund or outside them. To beat inflation, you need to invest in equities rather than leave it in cash. But you can do that directly without going near a pension fund.

I see no point in putting €10k into a pension fund today if you are not getting any tax relief.

When you retire, your income from your pension will be taxable income, so the worst outcome is that you put in €10k now and get no tax relief, but take it out in retirement and pay tax on it.

So wait until you have taxable income.

And by the time you retire, auto-enrolment might be rolled out to self-employed which is another reason for not contributing now.

Brendan
 
ThisisMax said:
The rent a room and 3K gift are not counted as income but could be used to pay my pension?
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Correct.

Money is fungible. If you have a bank account with €20k in it, you can't say that €10k came from rent a room, €5k from salary and €5k gift.

Brendan
 
Thanks Brendan. But in this case if my income rises to 50K which I think it will then I would get tax relief on the 15K? (30%)
 
Brendan Burgess said:
I see no point in putting €10k into a pension fund today if you are not getting any tax relief.
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Does it not grow tax free? i.e. exempt from capital gains and dividend income tax + there is a tax free lump sum at the end.
He probably won't pay tax on the amount at draw down if starting a pension at 50.
 
Laughahalla said:
Does it not grow tax free?
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It grows tax-free but not charges free.

And if he puts in €10k today, it will cost him €10k.

If he puts in €12,500 when he is paying 20% tax , it will still cost him €10k.

And if the autoenrolment is rolled out, and he puts in €10k, the government will add €3,333 I think.

Brendan
 
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