Pension Contribution

SITUATIONS WHEN A PENSION FUND MIGHT NOT BE ADVISABLE

IF YOU ARE PAYING TAX AT THE LOWER TAX RATE
Pensions are only attractive if they save you tax at the top rate of 42%. If you are on the 20% band, don't bother with a pension. You might end up in a situation where you save tax at 20% only to pay it at 42% on your retirement


Hi
I have a 42,000 euro salary and am married and over 50 years of age.
I have received a lump sum and can invest 30% of salary in my pension.

QUESTION
Should I only invest €5,000 as this is at 42% or €12,600 and get the balance of €7,600 at 20%
The guide to Savings & Investments says not to invest in a pension "where you save tax at 20% only to pay 42% on retirement"
So, It is my understanding that I should only invest €5,000. Am I correct?

Hi Pat

Do you have any idea of what your income might be in retirement?

For example, if you are about to retire and you will be earning less than €24,000, then you will be paying no tax. It would make sense to put the maximum allowed into the pensions scheme as you will save tax at 20% on the contribution and pay no tax when you receive it as a pension.

If you are going to be paying tax at 20%, and possibly at 42%, when you retire then you should only put the €5000 in now. That does not mean that you squander the balance. You save it outside the pension scheme. Next year, you should make another contribution to use up the 42% tax band.

Brendan

Contributions

I am 35 and have a limited company and currently pay myself €28,000 and am therefore paying tax at 20%.

Am I right in saying that I can increase my salary to say €34,000 and pay 20% of this into a company pension (€6,800). My net salary for tax purposes is now still under the €28,000 limit and I would pay no tax at 42%?

Thanks