Pension contribution options after redundancy

[_OkGo_]

I was discussing this recently with a friend who was made redundant earlier this year and it was of interest to me as my spouse may be offered a redundancy later this year .

Basically they did not make any 2023 AVC’s to their pension and they reduced their 2024 contribution up until they were made redundant.

Their logic was reasonable as they have a mortgage, small kids, creche fee's etc so cash flow was their priority. However they have found a new role quite quickly and the redundancy was better than expected so they are now in a position where they can resume pension contributions comfortably.

They can no longer make a contribution to the scheme of their former employer but what we could not find a definitive answer to was can they use the tax relief for this period with their new employer or are there other ways of using this, e.g. a standalone pension product to contribute to??

My assumption is they can't use it in relation to the new employer scheme but I have no idea about other options available. I don't have exact figures but I am guessing they have €20-40k worth of contributions between 2023/2024 that they could have made but didn't.

Any help greatly appreciated!

 

[S class]

They could use their spare cash to maximise their tax allowable AVCs in their new employers scheme for this year and for future years. It doesn't matter where the cash was earned.

Basically they would be using their wages from the new employer to maximise their tax allowable AVCs and then suplementing their wages from their spare cash.

This could be set up as an AVC PRSA if they don't want their new employer to be aware that they can afford to make maximum AVCs.

 

[asdfg]

They can also make contributions for 2023 provided they do so before 31st Oct this year. When making the payment to the pension provider say that it is to go against 2023. Ask revenue for a balancing statement for 2023.

 

[AAAContributor]

what we could not find a definitive answer to was can they use the tax relief for this period with their new employer or are there other ways of using this, e.g. a standalone pension product to contribute to??

It's unfair, but as your pal has now left the employment, as I understand it a pension contribution in 2024 in respect of those earnings is not eligible for tax relief for the tax year 2023.

Commentary on a similar type situation: Post #4 from this thread

According to Paragraph 24.2 of the Revenue Pensions Manual regarding tax relief for PRSA contributions:

"an individual who is a member of an approved pension scheme or a statutory scheme....may, in relation to their income from the office or employment, only claim relief for additional voluntary contributions (AVCs) to a PRSA."

It won't be possible now to contribute to the previous scheme. Presumably a PRSA AVC plan can't be opened now with a pension provider in relation to a terminated employment.

 

[_OkGo_]

That's great @AAAContributor , I think that is the answer I was looking for but would not have been able to find.

It seems very unfair alright. I don't see why the tax relief is arbitrarily attached to that specific employment. I would have assumed that tax relief is to encourage you to fund your own pension so why should it have additional caveats.

And specifically in the case of redundancy. The last thing most people are thinking of when facing redundancy is making a hefty lump sum.

Well at least my spouse can plan around this and at least get the 2023 AVC in and decide what to do for 2024

 

[LDFerguson]

They can also make contributions for 2023 provided they do so before 31st Oct this year. When making the payment to the pension provider say that it is to go against 2023. Ask revenue for a balancing statement for 2023.

No they can't as they are no longer in the employment or pension scheme they were in during 2023. The ability to backdate AVCs into the previous tax year for tax relief purposes ends when you leave the relevant employment.

 

[Itchy]

No they can't as they are no longer in the employment or pension scheme they were in during 2023. The ability to backdate AVCs into the previous tax year for tax relief purposes ends when you leave the relevant employment.

As an aside, what's the point of this provision? Why is it important that your tax relief is attached to an employer and dies when you leave them?

 

[LDFerguson]

As an aside, what's the point of this provision? Why is it important that your tax relief is attached to an employer and dies when you leave them?

Frankly, I just don't know what the logic is. It seems unfair that you can backdate in other areas but there's a specific exclusion for people making AVCs after they have left the employment.