pension relief

cdlmarie

Hi everyone.
I recently moved to Ireland and I'm having trouble understanding how pension relief works.
So let's say I make about 28k a year and decide to contribute 20% of my gross salary to my company's pension plan does that mean(since I'm in the 20% tax bracket) that I get tax relief for those 20% and that my taxes will be calculated on 28k - 20% = 22k gross salary?
thanks a lot in advance for your answers!

homer911

Up to 30 years of age the tax threshold is capped at 15% of your net relevant earnings and relief depends on your marginal rate (in this case 20%). You will still pay USC and PRSI on the gross

cdlmarie

I'm actually 32 so I think the tax relief is 20%... But did I get it right the way i wrote it? thanks

AlmightyCushion

cdlmarie wrote: »

I'm actually 32 so I know the tax relief is 20%... But did I get it right the way i wrote it? thanks

How it works is the full amount of your contributions goes towards your pension fund and you don't pay any tax on this. In your example above where you pay 20% into your pension then you will contribute €5600 (20% of 28000). The full €5600 will go towards your pension (minus any charges and fees the pension fund may charge). You pay no tax on this €5600.

You will now get paid €22,400 for the year and pay taxes, PRSI and USC on that amount instead of the €28,000.

cdlmarie

thanks! I thought that's what I understood!

coylemj

AlmightyCushion wrote: »

You will now get paid €22,400 for the year and pay taxes, PRSI and USC on that amount instead of the €28,000.

There is no relief on PRSI or USC in respect of pension contributions. In your example, the OP's PRSI and USC will be calculated based on his gross income (€28,000) and PAYE will be calculated on his income net of pension contributions - €22,400.

See Chapter 3 at the link below, it's a PDF file and on p.2 it states the following...

There is no relief from PRSI or the Universal Social Charge (USC) in respect of contributions made to occupational pension schemes.

http://www.revenue.ie/en/about/foi/s16/pensions/

cdlmarie

thanks, I actually knew that, I was only referring to income tax, but thanks!

AlmightyCushion

coylemj wrote: »

There is no relief on PRSI or USC in respect of pension contributions. In your example, the OP's PRSI and USC will be calculated based on his gross income (€28,000) and PAYE will be calculated on his income net of pension contributions - €22,400.

See Chapter 3 at the link below, it's a PDF file and on p.2 it states the following...

There is no relief from PRSI or the Universal Social Charge (USC) in respect of contributions made to occupational pension schemes.

http://www.revenue.ie/en/about/foi/s16/pensions/

I never knew that. Thanks.

bmwguy

AlmightyCushion wrote: »

I never knew that. Thanks.

You can put 5600 into your pension every year (which is 20% of your income) and claim full tax relief of 20% (which is your tax rate).

So putting 5600 in will cost you 4480 from your take home pay, the other 1120 would have been paid in tax but now it goes to your pension instead.

AlmightyCushion

bmwguy wrote: »

You can put 5600 into your pension every year (which is 20% of your income) and claim full tax relief of 20% (which is your tax rate).

So putting 5600 in will cost you 4480 from your take home pay, the other 1120 would have been paid in tax but now it goes to your pension instead.

I know that. I was talking about USC and PRSI still being paid on your full income regardless of if you contribute to a pension or not.

coylemj

A lot of occupational pension schemes involve a mandatory contribution from the employee, this counts towards the maximum relief i.e. if you are in the age bracket where the max. of your gross which can get tax relief is 20% and your scheme requires the employee to contribute 5%, the maximum voluntary contribution on which you can get tax relief will be 15%.

Merowig

If the employer contributes towards a PRSA the employer contributions count as well towards your maximum voluntary contribution.
If the employer contributes towards an occupational scheme their contributions don't count towards your maximum voluntary contributions.

cdlmarie

Merowig wrote: »

If the employer contributes towards a PRSA the employer contributions count as well towards your maximum voluntary contribution.
If the employer contributes towards an occupational scheme their contributions don't count towards your maximum voluntary contributions.

It's not a personnal pension it's a occupationnal pension. thanks!