Pension AVCs after budget 2010

Usjes

Hi,

I heard that the 2010 budget reduced dramatically the benefit derived from adding AVCs to a pension. I am a PAYE employee with a standard pension which both myself and my employer pay into. On top of this I have been adding AVCs for a number of years and my understanding was that this was tax free so I was effectively saving an extra 41% on these contributions which would otherwise have been collected as tax. Has this tax relief been removed completely or just reduced ? Is there any benefit in adding AVCs any more ?

Thanks,

Usjes.

Mr. Incognito

It has not reduced or changed the benefit just lowered the maximum contribution threshold and has applied PRSI

Here is a summary http://www.budget.gov.ie/budgets/2010/Summary.aspx

PRSI & PENSION CONTRIBUTIONS

With effect from 1st January 2011, employee pension contributions will be subject to employee PRSI & the USC. Previously there was relief of PRSI and health levy for employee pension contributions.

Employer PRSI relief on pension contributions made by employees is also to be reduced by 50%. Therefore 50% of employee pension contributions will be subject to employer PRSI at 10.75%. This places a further cost on employers in providing funding for occupational pension schemes.

CONTRIBUTION LIMITS FOR PENSION RELIEF

High earners will take a further tax hit on the earnings cap for pension relief which is to be reduced from €150,000 to €115,000. This reduced limit apply for payments made in 2011 whether the contribution is against 2011 or 2010 earnings. Therefore, if you wish to maximise the current threshold of €150,000, you may want to making additional pension contributions before the end of this tax year.

A New earth

The Irish Times - Thursday, November 25, 2010
Tax changes may cause workers to end contributions

DOMINIC COYLE

PENSIONS: TAX RELIEF on pensions is to be reduced sharply under the National Recovery Plan. The Government has decided to restrict tax relief on pension scheme contributions to the standard rate of income tax (20 per cent). At present, higher rate taxpayers can avail of relief at 41 per cent.
The adjustment is significantly more severe than the proposal in the National Pensions Framework to grant relief for all contributions at 33 per cent, regardless of income, which had been accepted by the Government.
The reduction will be phased in over three years from 2012. The relief will drop to 34 per cent from 41 per cent in 2012, to 27 per cent in 2013 and to 20 per cent in 2014.
In addition, from next year, pension contributions will no longer be exempt from PRSI and the health levy.

hmmm

Another significant change is that employers will now be charged employers PRSI on employee contributions, so it is less likely that employers will encourage pension investments. If the plan is to end pensions for private sector workers they are going about it the right way.