Contributing to pension/PRSA when receiving payment from department of Social Welfare

xxxSedgexxx

Hello,
I am unable to work due to injury and am receiving Invalidity Pension from the department of social welfare, totalling 10k€ per year. I am entitled to the personal and PAYE tax credits (1650€ each). My wife who earns a decent pay is using my PAYE tax credit (which is transferable). I therefore pay 20% Income tax on the social welfare payment I receive above €8,250.
My question is: Can I contribute to a pension for 1750€ per year and claim 20% tax back, in the same way I would be entitled to if I was earning through employment the 10K€ per annum.
Thanks for any advice.

gerrybbadd

xxxSedgexxx wrote: »

Hello,
I am unable to work due to injury and am receiving Invalidity Pension from the department of social welfare, totalling 10k€ per year. I am entitled to the personal and PAYE tax credits (1650€ each). My wife who earns a decent pay is using my PAYE tax credit (which is transferable). I therefore pay 20% Income tax on the social welfare payment I receive above €8,250.
My question is: Can I contribute to a pension for 1750€ per year and claim 20% tax back, in the same way I would be entitled to if I was earning through employment the 10K€ per annum.
Thanks for any advice.

It's the personal credit your wife has, the PAYE credit is non transferrable.

Unfortunately, no, you can't get tax relief. Tax relief is calculated against reckonable earnings for pension contributions, and DSP income doesn't count as reckonable.

xxxSedgexxx

Thank you for your reply Gerrybbadd. May I kindly ask... How certain are you of this? I must admit I wasn't expecting this reply. I am a little disappointed. I appreciate your quick reply.

gerrybbadd

xxxSedgexxx wrote: »

Thank you for your reply Gerrybbadd. May I kindly ask... How certain are you of this? I must admit I wasn't expecting this reply. I am a little disappointed. I appreciate your quick reply.

How I know? I work for Revenue.

The section in the act that deals with this is between 770 and 790 of the TCA 1997. the relevant earnings is explained as: (I think i called them reckonable earnings)

Relevant Earnings
“relevant earnings” means either — (1)
• income from employment,
• income from property attached to or forming part of the emoluments of that
employment, or
• income from a trade or profession.

xxxSedgexxx

Thanks, much appreciated.
Would you happen to know the answer to the following question?
My wife contributes to her pension via her employer. She would like to make an AVC to the maximun allowable for tax benefits. Her P60 shows a "Total pay" (left side) amount less than the "Total Pay for USC" (right side), because the 1st amount has been reduced by the amount she has contributed to her pension. Our understanding is that she can contribute to her pension up to a maximum of 20% (age 30-39) per year of her "Net Relevant Earnings" to benefit of the tax advantage. We believe the Net relevant earnings is the larger amount (used to calculate USC). Is this correct?
For example, if she was earning 50K€ per year and not contributing to pension via payroll, then she could put 10K€ per year into a PRSA (ie. 20%). However, if she was already contributing 5K€ per year to her company pension, then her P60 (left side) would indicate 45K€. 20% of that would only be 9K€ and she could therefore only add an AVC of 4K€.
Thanks.

bmwguy

Amount of AVC available is , if I understand your query correctly

(Gross pay Right hand side * 0.2 ) less annual amount contributed through payroll

Or

Gross pay left hand side * 0.2

Which are the same thing really.

xxxSedgexxx

Thanks. But they don't amount to the same thing:

(Gross pay Right hand side * 0.2 ) less annual amount contributed through payroll...... In the example this would equal 50K * 0.2, ie. 10K€ less 5K€ contributed via payroll. Total contribution = 10K€

Gross pay left hand side * 0.2.... = 45K€ * 0.2, ie. 9K€

Essentially we want to be certain of the maximum annual contribution she can make to her pension. Depending on which "Total" we use on her P60, the maximum is different.

gerrybbadd

The way it works is work out how much she can get relieved based on her age

So 50k @ 20% =10k. Subtract what's been already relieved (ordinary pension contributions, relieved via net pay arrangement). What's left is how much relief you can avail of.

Its important to note that, if you invest more than can be relieved in that tax year, that any unrelieved amount carries forward to the next year.

Also, if you invest (and elect to do so) before 31st October, you can choose to backdate a pension contribution to the prior tax year.

xxxSedgexxx

Hi Gerrybbad,

I found that Chapter 24 Revenue Pensions manual states:

"An individual who is not in pensionable employment is entitled to relief on contributions up to €1,525 even if the contribution exceeds the relevant age percentage limit. This does not apply in the case of contributions to a PRSA for AVC purposes."

It would seem that anyone can contribute up to 1,525€ per year and benefit from relief even with no income. Does this information seem correct to you?

Thanks,

gerrybbadd

xxxSedgexxx wrote: »

Hi Gerrybbad,

I found that Chapter 24 Revenue Pensions manual states:

"An individual who is not in pensionable employment is entitled to relief on contributions up to €1,525 even if the contribution exceeds the relevant age percentage limit. This does not apply in the case of contributions to a PRSA for AVC purposes."

It would seem that anyone can contribute up to 1,525€ per year and benefit from relief even with no income. Does this information seem correct to you?

Thanks,

Hi,

I think the important part there is the "employment" line. There would have to be employment income. Not every employment is a "pensionable" employment. That's my interpretation of it, i'm open to correction!