Pension questions

[PebbleBeach2020]

I have searched online on behalf of a friend but I can't find any answer.

My friend is 40 years old. She earns 38500 gross per annum.

Starting a pension I understand (am I correct) that she can contribute 25% of her gross income (€9625) and get tax relief @40% on this amount. So of the €9625, the taxman will pay €3,850 and she will pay €5,775.

Is that correct?

Or the fact that she is just over the threshold and paying at the 40% tax rate, does it mean she can only claim 40% relief on a certain amount. This is the confirmation or information I cannot find anywhere. I'll email revenue if I can't get the answer here.

Thanks.

 

[RedOnion]

Or the fact that she is just over the threshold and paying at the 40% tax rate, does it mean she can only claim 40% relief on a certain

This.

She can claim tax relief on 25% of her income, but only at the rate she's paying. So it'll be a mix of 40% on anything over the tax band, and 20% on the rest.

 

[PebbleBeach2020]

For a single person the threshold is 35300. But she is married and ger husband earns approximately 100k. They are jointly assessed.

Does this affect what she claims etc relief wise.

 

[Conan]

The way this works is that any pension contribution reduces her gross taxable income. So if her gross earnings are €38,500 and she contributes say €9,000, then her gross taxable income reduces to €29,500. So that income will be below the top rate of tax thus generating a mix of relief at 20% and 40%.

 

[RedOnion]

Does this affect what she claims etc relief wise

Yes. But they need to look at it jointly, not 'his & her' money.

She allocates some of her lower rate band to husband. Say 5k. Then he'll earn an extra 5k at 20% instead of 40%. She'll get tax relief on the 5k she puts into pension.

So, between them they get 40% relief on the amount she puts into pension.

You'll find other threads with more specific examples.

 

[Dave Vanian]

Yes. But they need to look at it jointly, not 'his & her' money.

She allocates some of her lower rate band to husband. Say 5k. Then he'll earn an extra 5k at 20% instead of 40%. She'll get tax relief on the 5k she puts into pension.

So, between them they get 40% relief on the amount she puts into pension.

You'll find other threads with more specific examples.

Let's imagine that the husband has maxed out pensions as far as he can and has no further scope to contribute but as a couple they have disposable income. Would it make sense for them to allocate all credits / bands as far as possible to the husband, because then she would get 40% tax relief on more of her pension contribution?

 

[RedOnion]

@Dave Vanian
Yes, exactly. But she can only get tax relief on 25% of her income, so there's a limit to it.
Plus she can only allocate the band above 26,300 to husband.

 

[Risk Reversal]

In terms of the tax relief on the income, is this limited to the annual salary or is it extended to include other allowances as part of their employment contract such as a car allowance etc

 

[SPC100]

AFAIK a car allowance is just some extra money paid to you from your company for doing your job (as you don't have access to a company car) and is just treated as income, so it would be included.

 

[Risk Reversal]

Thanks for your response SPC100.

I've seen it mentioned by various posters that a pension is considered "well funded". Can anyone elaborate as to what they consider well funded as a joint contribute from employer/employee in percentage terms of salary?

 

[NoRegretsCoyote]

Can anyone elaborate as to what they consider well funded as a joint contribute from employer/employee in percentage terms of salary?

I think it's more about your age, current size of your pension pot, and what your retirement income will look like compared to your current income and your needs.