Max AVCs with Employer Pension contribution

Mike Funnelly

Hi guys,

I'm currently in a defined contribution pension scheme at work where the employer makes a contribution to the pension. Under the terms of the scheme, we put 5% in and they put 5% in.
With regards to the tax relief on pension contributions, the max amount I can recieve tax relief on due to my age is 15%.

My question is, is the 15% max contribution based solely on my own contributions e.g. can I put another 10% in AVCs plus the employer contribution, or is it the case that I can only put in another 5% in AVCs and recieve tax relief on it (5% employee contribution + 5% employer contribution + 5% AVCs) and anything else i put in is out of my after tax pay?

I have had a look on the forum and haven't really been able to find an answer to my question so I opened a new thread.

ANXIOUS

It's based solely on your contributions, employers are excluded.

Mike Funnelly

So if employer contributions are exempted I can add AVCs of 10%?

ANXIOUS

Mike Funnelly wrote: »

So if employer contributions are exempted I can add AVCs of 10%?

Correct

pacelut

https://www.oneview.mercer.ie/content/mercersubdomain/global/en/oneview/plan-your-pension/retiring-soon/maximising-pension-contributions.html

"If your employer contributes to a PRSA on your behalf it is important to note that employer contributions count against your maximum total contributions."

pacelut

http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_employer_contributions/

"Contributions paid by employers to PRSAs are treated as a benefit-in-kind but income tax relief is provided subject to the overall contribution limits for employee contributions. Employer contributions to PRSAs are not subject to PRSI or the Universal Social Charge (USC)."

ANXIOUS

OP clearly state its a defined contribution pension scheme so not relevant.

pacelut

No difference in tax limits between PRSA and DC:

http://www.citizensinformation.ie/en/money_and_tax/personal_finance/pensions/occupational_pensions.html

pacelut

or here:

http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_contributions/

pacelut

or direct from taxman:

http://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

ANXIOUS

pacelut wrote: »

or direct from taxman:

http://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

"You can get tax relief on YOUR pension contributions up to the relevant age-related percentage limit of your earnings in any year."

coylemj

Anxious is 100% correct. For a revenue-approved occupational pension scheme (applies to DB and DC), the age-related tax-free limits apply to the employee contribution only, including AVC.

Henry Ford III

coylemj wrote: »

Anxious is 100% correct. For a revenue-approved occupational pension scheme (applies to DB and DC), the age-related tax-free limits apply to the employee contribution only, including AVC.

Tax relief.

p.s. There is an overall maximum funding limit permitted by Revenue, it's calculated individually, takes quite a few factors into account, but it's always high. In the absence of hefty retained benefits it's likely be 100%+ of salary.

Glenster

Henry Ford III wrote: »

Tax relief.

p.s. There is an overall maximum funding limit permitted by Revenue, it's calculated individually, takes quite a few factors into account, but it's always high. In the absence of hefty retained benefits it's likely be 100%+ of salary.

The main contributing factor to Revenue's calculation is the age of the participant.

So if you're in your twenties it likely to be significantly below 100%.

Henry Ford III

Glenster wrote: »

The main contributing factor to Revenue's calculation is the age of the participant.

So if you're in your twenties it likely to be significantly below 100%.

Depends.

NRD is normally 60 minimum but can be much earlier depending on occupation. These times the maximum pension threshold is much more significant.

p.s. For short service cases funding rates of 600%+ of salary are allowable.

Glenster

Henry Ford III wrote: »

Depends.

NRD is normally 60 minimum but can be much earlier depending on occupation. These times the maximum pension threshold is much more significant.

p.s. For short service cases funding rates of 600%+ of salary are allowable.

Practically speaking the threshold is always going to be high when exercised, but that's because high contribution rates are generally only exercised late in career to bulk out an underprovided pension pot.

If you and your employers spend your career paying appropriately into your pension you're never going to get close to 100-600% approved funding rates.

The revenue rules are in place to ensure that you come out at retirement date with a 2/3rds pension, if you're pitched above this they will a) deny you tax relief and b) investigate your pension scheme as a tax avoidance mechanism.

So, in response to your point, thresholds are high for people who horse in additional AVCs and have negotiated an additional employer contribution, but that's because Revenue recognises that the people who exercise this option have an increased need for these contributions. Its by no means standard.

Henry Ford III

Glenster wrote: »

Practically speaking the threshold is always going to be high when exercised, but that's because high contribution rates are generally only exercised late in career to bulk out an underprovided pension pot.

If you and your employers spend your career paying appropriately into your pension you're never going to get close to 100-600% approved funding rates.

The revenue rules are in place to ensure that you come out at retirement date with a 2/3rds pension, if you're pitched above this they will a) deny you tax relief and b) investigate your pension scheme as a tax avoidance mechanism.

So, in response to your point, thresholds are high for people who horse in additional AVCs and have negotiated an additional employer contribution, but that's because Revenue recognises that the people who exercise this option have an increased need for these contributions. Its by no means standard.

I'd agree with much of what you're saying but not the bit I've highlighted.

For a higher earner it's not that difficult to run into trouble with the Revenue maximum threshold without achieving maximum pension benefits.

In addition all occupational schemes are Revenue approved in advance so overfunding cannot happen except in the most extreme circumstances. Exempt approval means tax relief is available and that the net pay arrangement is available for any employee contributions.

Revenue never run investigations of the type you mentioned. In actual fact they essentially do the opposite by providing exempt approval.

Ace2007

Mike Funnelly wrote: »

Hi guys,

I'm currently in a defined contribution pension scheme at work where the employer makes a contribution to the pension. Under the terms of the scheme, we put 5% in and they put 5% in.
With regards to the tax relief on pension contributions, the max amount I can recieve tax relief on due to my age is 15%.

My question is, is the 15% max contribution based solely on my own contributions e.g. can I put another 10% in AVCs plus the employer contribution, or is it the case that I can only put in another 5% in AVCs and recieve tax relief on it (5% employee contribution + 5% employer contribution + 5% AVCs) and anything else i put in is out of my after tax pay?

I have had a look on the forum and haven't really been able to find an answer to my question so I opened a new thread.

Just to note, that you may potentially be able to put more than 10%, depending on the rules of the scheme. the 15% limit is on all earnings (basic salary + overtime, bonus, shift etc), where as your 5% may just be on basic salary

coylemj

Ace2007 wrote: »

Just to note, that you may potentially be able to put more than 10%, depending on the rules of the scheme. the 15% limit is on all earnings (basic salary + overtime, bonus, shift etc), where as your 5% may just be on basic salary

That's a good point. After the year is over, you have until Oct the following year to make a one-off contribution to an AVC scheme and claim relief for the previous year. This can be useful if you don't know your exact earning until the year is over like you get an end of year bonus but it comes too late for the payroll.

You may also be able to include benefit-in-kind in your gross earnings and contribute up to 15% of the notional benefit to an AVC.

delta_bravo

Would the tax relief also apply in the case of a lump sum being put into your prsa? Eg. I'm paying 5% with employer contribution of also 5% could I also put in a lump sum of say 2k and get income tax relief?

coylemj

delta_bravo wrote: »

Would the tax relief also apply in the case of a lump sum being put into your prsa? Eg. I'm paying 5% with employer contribution of also 5% could I also put in a lump sum of say 2k and get income tax relief?

Yes, if you have not breached the age-related limit and your gross is less than 115K, lump sump contributions for AVC or PRSA qualify for relief just like deductions made via payroll except that you have to claim after the event and you can make lump sum contributions up to Oct 31st in the following year.

If you were making such a lump sum contribution now for last year, what you do is tell the provider that the contribution is in respect of the tax year 2016 and they will give you a certificate that you can submit with your tax returns for 2016.

You may pay a once-off or special pension contribution after the end of a tax year but before the following 31 October. If you do, you can choose, on or before 31 October, to have the tax relief for the contributions allowed in the earlier tax year.

http://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx