What is defined as Income for AVCs

As I understand it a person can contribute up to 30% (dependent on age) of their Income to benefit from Tax Relief. My question is what is defined as Income; in the case where a person has a Basic Salary, Plus Bonus and company stock options (on which 42% tax must be paid when exercised and sold) are all included in determining their total income? Or is it just the Basic Salary component? At the moment our company makes AVC pension deductions through payroll based on basic salary only.

In simple terms, what's taxable is pensionable. So since you pay tax on basic salary plus bonus plus any BIK, then you can pension same. So yes you can contribute AVCs based on the gross taxable income.
In relation to Stock Options, these are taxed as Income, but only in the year you exercise the options. If you were intending to contribute say 30% of the value as an AVC (to reduce the Income Tax) you will need to ensure that you are not likely to exceed Revenue benefit limits, depending on the benefits provided by your main scheme.

Thanks for the reply - that helps a lot.

I have investigated a little more the rules around the revenue limits on AVCs - there is a lot more too this than I thought ! Here is what I have found;
Revenue Limit on AVCs

For tax relief purposes, an employee's total pension contributions cannot exceed the limits as set out above, in any year. This is inclusive of any ordinary contributions made, subject to the following conditions:

The additional benefits secured by AVCs, when added to the benefits of the main scheme, must be within the approval limits set by the Revenue Commissioners.

No more than 5/6 of the member's total benefits from all pension schemes of the employer may have been paid for by the member

From this am I right in saying that I cannot contribute anymore than 83% of the total pension contributions (including company contribution); and of course I cannot exceed the limits set for tax relief purposes.

I think the rule has been relaxed since.

Minimum Employer pension contribution is 10% of the total ordinary contributions.

Not sure are stock options pensionable either?

If your main scheme is a Defined Contribution arrangement, then the Employer must contribute a minimum of 10% of the total contribution for you.
If your main scheme is a Defined Benefit arrangement, then it is more likely that the benefit limit rules will apply.
In relation to Share Options, they are strictly pensionable. So if you are in a DC scheme then in the year you exercise the options you could invest the appropraite % as an AVC. If you are in a BD scheme, its more complicated as it will depend whether the value of the options will fall into the definition of Final Salary for benefit calculation purposes. For example, if the option is exercised in the 10 years immediately before you retire, then the value may possibly be capable of inclusion in the average salary definition for calculating the pension benefit. But if you exercise the option say at age 50 and retire at age 65, then the value will not be included in the final salary computation. You could still invest the % of the option value in the year of exercise, but it potentially brings you closer to the Revenue benefit limits.
I suggest you consult your scheme Trustees or scheme adviser.

Conan - Thanks a lot for your help. Its a Defined Contribution scheme so it is less complicated!


Thanks again.