tax relief for a pension contribution

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Dazed&Confused

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I have a query re: the tax relief for a pension contribution - particularly how you calculate the denominator.

My wife is setting up a PRSA & her employer will match her contribution up to 6%. As she has not had a significant pension contribution previously, we are planning on maximising the contribution to 20% - she’s 37.

As her employer will match up to 6%, is he net earnings inclusive of the employer's pension contribution? So salary + employer's pension contribution? For example, if her salary is €100 & she contributes €6, her employer contributes €6. So is the net earnings from her employer €100 + €6 = €106. Can we base her 20% contribution off the €106?

Thanks for your help in advance.
DC
 
No. The contribution limit is based on gross taxable earnings (capped at €115,000).
 
Is the employer contribution to a PRSA not a BIK for the employee and then in effect an employee contribution? Ie. it is more earnings for the employee which they put into a pension and get tax relief subject to the 115k cap.

Please note that the employers 6% contribution to a PRSA will erode her 20% limit. ie she will only get tax relief on 14%.

So calc should be: 20% of (Salary plus employer pension contribution) less employer pension contribution?
 
Fergal19 is right. A PRSA isn’t a good idea if the employer is contributing; would they facilitate an Executive Pension for her?
 
Thanks all for the feedback. Really appreciate the help as we are only beginning to put the effort into learning about the world of pensions. We should have started 15 years ago!

So in summary, if the employer is contributing 6%, my wife can contribute 14% to reach the max contribution of 20% as she is 37. She’s going to divorcee me if she reads this post & the fact I’ve mentioned her age twice!

After re-reading my posting let me clarify one point – her employer has set up a PRSA scheme with Irish Life. She’ll follow up during the week re: Executive Pension – but her employer is not known for been flexible nor deviating from their “standard” way of working.
 
Conan’s answer has prompted a second question – I didn’t know there was a €115k max.

My total salary is €135k (base pay: €95k + car allowance: €16k + bonus: €24k). I also do a part-time job on top of that, so it can add $1-2k to it.

Based on Conan’s comment: I can only claim 20% against €115k (I’m 39 so 20% contribution) = €23k. Right?

I am in a Defined Benefits Pension & I estimate my contribution in 2019 will be less than €10k. So that leave me with potentially €13k for AVCs. Right?

Again - thanks for all your help.
 
Dazed&Confused said:
Based on Conan’s comment: I can only claim 20% against €115k (I’m 39 so 20% contribution) = €23k. Right?

I am in a Defined Benefits Pension & I estimate my contribution in 2019 will be less than €10k. So that leave me with potentially €13k for AVCs. Right?

Again - thanks for all your help.
Click to expand...

That's exactly right.
 
Back to the OP's original question, I always thought the employers contribution is not counted towards the age-based percentage limit.
It certainly doesn't count for normal DB/DC schemes anyway, maybe it's different for PRSA products.
 
OK, that's interesting, RedOnion. Seems quite the anomaly then, that a PRSA should be treated so differently.
 
PRSA products are a lot more rigid in their pricing and fund choice as well as the employer's contribution counts against the tax relievable amount. There is very little reason to invest in a PRSA over an Executive Pension (2 year vesting rule being one, but the employer can waive that).


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I’m curious - why would an employer offer a PRSA over an Executive Pension? What’s influencing the employers perspective on this?
 
Trusteeship. An executive pension is written under trust and the trustees must undergo trustee training. In a lot of cases, the company are the trustees, which means all the directors have to undergo training. In a lot of instances these days, the directors may actually be living in a different country.

PRSAs are written under contract and there's no such obligation.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Dazed&Confused said:
I have a query re: the tax relief for a pension contribution - particularly how you calculate the denominator.

My wife is setting up a PRSA & her employer will match her contribution up to 6%. As she has not had a significant pension contribution previously, we are planning on maximising the contribution to 20% - she’s 37.

As her employer will match up to 6%, is he net earnings inclusive of the employer's pension contribution? So salary + employer's pension contribution? For example, if her salary is €100 & she contributes €6, her employer contributes €6. So is the net earnings from her employer €100 + €6 = €106. Can we base her 20% contribution off the €106?

Thanks for your help in advance.
DC
Click to expand...
With a PRSA the employer and employee contributions both count towards the age related allowances as an overall % of income.

As such, there is a big discrepancy between the benefits offered between PRSA and company pensions.

If the employer is making a contribution then it's worth trying to see if she can get it since this will also allow her the additional option of funding for tax free cash on its own which the PRSA does not.

The trusteeship can also be outsourced to a trustee company for around €80+VAT per year.

If you want to see how the numbers work then you might find this calculator helpful.

Kevin
www.thepensionstore.ie
 
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