Tax relief on pension contributions.

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acequion

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I understand that tax relief on pension contributions is based on the rate of tax you pay. My question is this. Say you have always paid tax at the top rate. PAYE worker, good salary. Say you work part time for a few months before you retire so you are down to the 20% tax rate. Just before you retire you top up your pension fund by a lump sum contribution. But you are now only paying tax at 20%. Can you backdate your tax refund claim to the previous year when you paid tax at 40% to avail of that relief or will you only get relief at 20%? Thanks for answering.
 
I don’t work in financial services but my understanding is that you can make a lump sum AVC payment this year and state that you want it attributed to the previous tax year.

It must be before the end of October of the current year and be within the revenue maximum limits.
Relief age related as a percentage of salary to a maximum salary 115k.
This is in relation to your own overall contributions to the year in question.

I have done it already earlier this year 2024 for the tax year 2023 as I too was about to retire and I quickly received a rebate of 40%.
I don’t expect to reach the standard rate cut off this year and so when my income tax gets balanced for 2024 I will be at standard rate of 20%.
You’re correct, you must do it before retirement.

I hope this helps.

Best of luck and enjoy your retirement.

Edit. My understanding above is with regard to my DC occupational pension. I have no personal experience of Public Service pensions.
 
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You can backdate the Tax Refund claim as long as you make the Contribution before your retirement AND the Claim by 31st Oct of that year.

You are limited to the Age Percentage limits of the previous (full time) working year Income rather than the current (part time) working year Income.

If you apply for your Tax Refund early enough (e.g. June) then you could also use that refund to further boost the Previous/Current years AVC again (subject to age limit) and get another Tax Refund on that second contribution.
 
Thanks so much for the replies, appreciate them.

However I probably wasn't clear enough. Here is the position. I'm public sector, a teacher and when I retire I will receive a lump sum. However there will be deductions from that lump sum to buy back previously unpensionable service. This bill cannot be settled until retirement. As it is a pension contribution it is eligible for a tax refund. My dilemma is this. If I retire this year I retire from full time salary paying the high rate of tax. If I job share for a few months first, taking me into 2025 I will retire on the lower tax rate. Obviously it is much better for me financially to be refunded 40% of a significant bill, so will I be able to backdate the claim to the previous year when was on the 40% rate? This matter has been touched on over on the public sector pensions thread, but I think it's more of a tax issue, hence bringing my query here. Really hoping somebody might know as it has a big bearing on my decision over when exactly to retire. Thanks so much.
 
I would suggest that you clarify with the Pension Unit of the Department. I found the following in their General Information advice:

"How is payment for this purchase made? –Lump Sum or Periodic Deduction from salary - Purchase by Lump sum Teachers who choose to purchase notional service may do so by one lump sum at any time prior to retirement or by making one lump sum payment each year up to the year or retirement. Lump sum payment in year of retirement must be made at least six weeks before retirement date. The teacher has the option to choose how to make these payments and must indicate this choice in the Contract. A teacher who has an AVC or private pension scheme may opt to purchase notional service using the appropriate fund provided that this is clearly indicated in the application form. The fund may be transferred by electronic transfer at any time prior to retirement. A delay in fund transfer will delay payment of pension benefit and lump sum. Transfer of AVC fund is subject to stringent conditions and subject to receipt of completed Declaration form when signing Contract for Notional Service Purchase."

I'm not familiar with Public Service pensions so it might be a better query for the Public Service Pension forum. Do you have a separate pension fund either related to a previous / separate employment or do you have one in parallel with your Teachers position for Additional Voluntary Contributions (AVC)? I googled the following so I'm assuming that this applies to you?

"AVCs are "Additional Voluntary Contributions". They are extra savings that you build up, separate from your teachers' pension.

Here's how they work:

You make regular contributions to the plan. Contributions are eligible for tax relief, so you can reduce your tax bill. Your money is invested, and there will be good and bad years, but it is carefully managed. Your AVC is designed to grow towards your retirement. You can't access your AVC until you retire, and if the worst were to happen your AVC would go to your family.

When you reach retirement, it's time to access your AVC's. First, you'll top up your teachers' Lump Sum to the maximum allowable - this part is tax-free.

Next, you will use the balance to top up your taxable pension. The more you can save and grow the more affordable retirement will be. AVCs work best when you maximise tax relief on the way in and minimise tax owed on the way out.

AVCs are suited to those with short service or interested in retiring early."


Do you intend to make one lump sum payment in the year of retirement and is that coming out of a Teaching AVC or separate private pension?

If the lump sum is coming out of an AVC (private pension) then I think that you will need to initiate that process yourself a few months before your retirement date in order for the AVC (Private pension) to be matured and the 25% lump sum processed several weeks before your retirement date. You will then need to use that lump sum to pay for the Notional Service at least six weeks before retirement date as per above quote. The AVC (private pension) is a separate vehicle from your normal Teachers pension.

The question still remains as to whether that lump sum contribution 6 weeks before your retirement date can be claimed against the previous year. The above General Information note also states:

"Tax relief for periodic purchase contributions is given at source through Payroll. However, for purchase by lump-sum option, tax relief must be claimed directly from the Revenue Commissioners. Please note that tax relief limits cover all superannuation contributions paid (including contributions under the Spouses’ and Children’s Pension Scheme)."

That appears to me that you claim the tax relief yourself and its up to you which year you claim it against. If you claim it prior to 31st Oct then you can claim it against the previous tax year. You will need a Certificate or detailed receipt of the payment which I assume that you will receive from the Department?

Revenue detail below

"How to claim the tax relief​

If you are a Pay As You Earn (PAYE) worker​

Usually your employer deducts the contributions directly from your pay, and will give you the tax relief due. If your employer does not deduct the contributions, you can claim the tax relief in myAccount by following these steps:

  1. Sign in to myAccount.
  2. Click 'Review your tax 2020-2023' under 'PAYE Services'.
  3. Request a Statement of Liability.
  4. Click on 'Complete Income Tax Return'.
  5. Go to the 'Tax Credits and Reliefs' page.
  6. Under the 'Your job' section, select 'Additional Voluntary Contributions (AVCs)' or 'Personal Retirement Savings Accounts (PRSAs)', and input all details regarding your policy.
  7. Complete and submit the form.
Sign in to myAccount
Note

To claim AVCs, a copy of the certificate, or detailed receipt, must be submitted when filing your Income Tax Return."

In conclusion, it looks like you can backdate the claim yourself subject to the 31st Oct and Cert/Receipt requirements but best to check with the Pension Unit and/or possibly your Union. Hope this helps.
 
Similar Query:

I will max out my pension contributions for year 2024. However, in 2023, I made significantly less contributions than allowed.
This year, in July 2024, I made once off lump sump payment as AVC to my pension plan with Zurich. In instructions, i mentioned that these contributions can be applied against my 2023 contributions.
I received letter from Zurich confirming they received the payment. But in letter, they have only mentioned the date on which funds were received and there is no mention that these contributions are being applied to 2023 year. Can I use this letter to claim tax back before October. Will Revenue accept this letter or should I go back to Zurich to request them to add more details.
 
uljha.desi said:
Similar Query:

I will max out my pension contributions for year 2024. However, in 2023, I made significantly less contributions than allowed.
This year, in July 2024, I made once off lump sump payment as AVC to my pension plan with Zurich. In instructions, i mentioned that these contributions can be applied against my 2023 contributions.
I received letter from Zurich confirming they received the payment. But in letter, they have only mentioned the date on which funds were received and there is no mention that these contributions are being applied to 2023 year. Can I use this letter to claim tax back before October. Will Revenue accept this letter or should I go back to Zurich to request them to add more details.
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I would expect the letter from the administrator to state the tax year to which the lump sum AVC applies (2023).
From my experience that has been the case. I needed it for my tax return.
I think you should ask for it to include the relevant tax year.
 
acequion said:
Thanks so much for the replies, appreciate them.

However I probably wasn't clear enough. Here is the position. I'm public sector, a teacher and when I retire I will receive a lump sum. However there will be deductions from that lump sum to buy back previously unpensionable service. This bill cannot be settled until retirement. As it is a pension contribution it is eligible for a tax refund. My dilemma is this. If I retire this year I retire from full time salary paying the high rate of tax. If I job share for a few months first, taking me into 2025 I will retire on the lower tax rate. Obviously it is much better for me financially to be refunded 40% of a significant bill, so will I be able to backdate the claim to the previous year when was on the 40% rate? This matter has been touched on over on the public sector pensions thread, but I think it's more of a tax issue, hence bringing my query here. Really hoping somebody might know as it has a big bearing on my decision over when exactly to retire. Thanks so much.
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I was trying to "buy back" years for the early years in DES. They can't do calculations until retirement.

If you find out, how they calculate the 'buy back' or approx costs per year I'd love to know so I can prepare financially. Thank you.

To transfer over 0.35 years from ETB to DES it was €407.
 
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GSheehy said:
Product providers can't backdate tax certificates. They must put date of receipt of money on certificate.

Policyholder just submits it to Revenue and elects to assign the payment to 2023.
Click to expand...
Thanks for the correction.
I presumed it was a requirement but it must have been just included by the administrator based on my request.
They obviously included the date of payment and tax year it would be attributed to just to keep me happy.
In fairness they were always very helpful.
 
There may be extra scope for backdating late AVCs in the year of retirement - see Appendix III of the Pensions Manual.
 
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