Pension contributions above age threshold

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daheff

Registered User
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So i had a question on this. While I understand that there are limits to how much of your annual salary you can contribute tax free to your pension fund (and up to an income limit), is there a benefit to contributing more than the tax free amount?

If you can contribute (lets say 50%) you would have any gains accumulate tax free in the pension pot. Then on retirement you would be able to withdraw up to 200k (currently) tax free.

so other than funds not availing of tax relief and being locked away in the pension pot, is there any other downside to this?


> just for clarity i'm not currently looking at doing this, but if a lump sum came available it might be food for thought.
 
daheff said:
Then on retirement you would be able to withdraw up to 200k (currently) tax free.
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Yes but for most pension products, the limit will be 25% of the fund up to a maximum of €200,000, tax-free. The other 75% is going to be taxable.
 
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If you had spare cash now, you could pay extra amounts into your pension. As you say you will get any gains on these extra contributions tax free for a longer period.

In later years, maybe if cash is tight, you could reduce or cancel your yearly pension contributions and instead claim tax relief for these years based on your previous overpayments.
 
In later years, maybe if cash is tight, you could reduce or cancel your yearly pension contributions and instead claim tax relief for these years based on your previous overpayments
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I didnt know you could make retrospective claims. If thats the case then its better to put money in now and claim the tax rebate in the future. You get the gains over time AND tax back later on.

Yes but for most pension products, the limit will be 25% of the fund up to a maximum of €200,000, tax-free. The other 75% is going to be taxable.
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Yes understand this 100%. I'm sure this limit will increase in the future though.
 
daheff said:
so other than funds not availing of tax relief and being locked away in the pension pot, is there any other downside to this?
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The possibility of paying low or high rate tax on pension income drawn down from a pension that was funded from already taxed income - i.e. paying tax on the double?
 
daheff said:
but if a lump sum came available it might be food for thought.
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daheff said:
I didnt know you could make retrospective claims. If thats the case then its better to put money in now and claim the tax rebate in the future. You get the gains over time AND tax back later on.
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Isn't it the case that depending on where the lump sum comes from such backdated tax relief may or may not be available. E.g. lump sum bonus from employment would qualify but an inheritance may not (since no income tax was paid on it by the beneficiary)?
 
daheff said:
Yes understand this 100%. I'm sure this limit will increase in the future though.
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I wouldn't hold my breath. When the Standard Fund Threshold (SFT) increases were recently announced, the link between the SFT and the tax-free lump sum was broken. It used to be that the tax-free/low tax lump sum was 25% of the SFT. (SFT €2 million; lump sum €500,000, of which €200,000 was tax free and €300,000 is taxed at a flat 20%). SFT is being increased over the next few years to €2.6 million but they broke the link and the lump sum rules remain unchanged. Doesn't sound like there's much of a will to increase the lump sum limits any time soon.
 
daheff said:
I didnt know you could make retrospective claims. If thats the case then its better to put money in now and claim the tax rebate in the future. You get the gains over time AND tax back later on.
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One very important consideration here is that you must be in the same employment when you made the contributions - so changing jobs would wipe out your ability to claim. I don’t know if this only applies to occupational schemes (ie tied to your job) or to PRSA’s also.
 

It is. While the OP could use an unearned lump sum (inheritance, gift, disposal of investment, lottery win etc.) to make a pension contribution, tax relief on such a contribution would only be available against their earned income.
 
GSheehy said:
It's relevant to all types of AVCs to occupational pension schemes.
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Thanks for confirming. So if you don’t have an occupational pension and just go for a personal PRSA, you’re fine. Do you know if you lose it by subsequently changing jobs and joining an occupational scheme?
 
If your future earnings were only from employment which has an occupational scheme, you could not get tax relief from these earnings into your previous PRSA.

There is always an element of risk in the over paying strategy.
 
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