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Is there any point contributing to a PRSA without tax relief?

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  • 23-10-2020 3:02pm
    #1
    ATC110
    Registered Users Posts: 300 ✭✭


    The answer seems obvious to me but is there any point in making contributions to a PRSA/pension in a given tax year when you have no tax liability anyway?


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    #2
    Allinall
    Registered Users Posts: 6,533 ✭✭✭Allinall


    If you think you will have a tax liability next year, then hold off until January and make the contribution then.

    If not, it's up to yourself. No different from making any other investment decision.


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    #3
    Jim2007
    Moderators, Business & Finance Moderators Posts: 9,988 Mod ✭✭✭✭Jim2007


    ATC110 wrote: »
    The answer seems obvious to me but is there any point in making contributions to a PRSA/pension in a given tax year when you have no tax liability anyway?


    And what do you think this obvious answer is?


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    #4
    homer911
    Registered Users Posts: 5,113 ✭✭✭homer911


    You have until the end of the month to make a contribution to claim against last year's taxes


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    #5
    Heres Johnny
    Closed Accounts Posts: 2,738 ✭✭✭Heres Johnny


    If you've no tax relief it's just a savings/investment account but you're locking money away. Invest in a flexible product. I assume you've no taxable income at all?


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    #6
    standardg60
    Registered Users Posts: 4,240 ✭✭✭standardg60


    Jim2007 wrote: »
    And what do you think this obvious answer is?

    I would have thought it was obvious enough.
    The very idea of a state sponsoring private pension funds through tax relief is for me the biggest pyramidal pile of nonsense i've ever heard of. How it doesn't breach EU state subvention law is beyond me. Both well off employees and companies get to avoid tax while private pension funds reap massive profits without having to have any responsibility as to the final value of the pension due to market forces. The only people who benefit are the already well off.
    The complete removal of tax relief would expose it for what it actually is, a long term protection of wealth. If it was removed it would lead to a substantial gain in tax take from those who can afford it allowing the state to provide a worthwhile state pension into the future while lowering income tax for everyone. That would allow for higher earners to still provide for their own income by making private investments, which they do anyway.
    I will never have a private pension for the above reasons (i'm self employed) and have no idea why anyone who isn't already benefiting from the status quo would have a valid argument in favour of them.


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    #7
    Jim2007
    Moderators, Business & Finance Moderators Posts: 9,988 Mod ✭✭✭✭Jim2007


    standardg60 wrote: »
    I would have thought it was obvious enough.
    The very idea of a state sponsoring private pension funds through tax relief is for me the biggest pyramidal pile of nonsense i've ever heard of. How it doesn't breach EU state subvention law is beyond me. Both well off employees and companies get to avoid tax while private pension funds reap massive profits without having to have any responsibility as to the final value of the pension due to market forces. The only people who benefit are the already well off.
    The complete removal of tax relief would expose it for what it actually is, a long term protection of wealth. If it was removed it would lead to a substantial gain in tax take from those who can afford it allowing the state to provide a worthwhile state pension into the future while lowering income tax for everyone. That would allow for higher earners to still provide for their own income by making private investments, which they do anyway.
    I will never have a private pension for the above reasons (i'm self employed) and have no idea why anyone who isn't already benefiting from the status quo would have a valid argument in favour of them

    Not relevant to the task in hand, if you want to discuss public policy take it to the political forum.


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    #8
    The J Stands for Jay
    Registered Users Posts: 5,650 ✭✭✭The J Stands for Jay


    standardg60 wrote: »
    I would have thought it was obvious enough.
    The very idea of a state sponsoring private pension funds through tax relief is for me the biggest pyramidal pile of nonsense i've ever heard of. How it doesn't breach EU state subvention law is beyond me. Both well off employees and companies get to avoid tax while private pension funds reap massive profits without having to have any responsibility as to the final value of the pension due to market forces. The only people who benefit are the already well off.
    The complete removal of tax relief would expose it for what it actually is, a long term protection of wealth. If it was removed it would lead to a substantial gain in tax take from those who can afford it allowing the state to provide a worthwhile state pension into the future while lowering income tax for everyone. That would allow for higher earners to still provide for their own income by making private investments, which they do anyway.
    I will never have a private pension for the above reasons (i'm self employed) and have no idea why anyone who isn't already benefiting from the status quo would have a valid argument in favour of them.

    Paying into a PRSA without tax relief is a terrible idea. You would be paying taxes funds into a PRSA, and then when drawing down you would be paying tax on the whole fund on the way out. Any other investment would just have tax on the gains only.

    The quoted post makes no sense. The pension fund managers' profits are taxed, and pension tax relief is actually tax deferral. The pensions are taxed on the other end when the value is much greater. Pensions are a large source of tax revenue


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    #9
    Jim2007
    Moderators, Business & Finance Moderators Posts: 9,988 Mod ✭✭✭✭Jim2007


    McGaggs wrote: »
    Paying into a PRSA without tax relief is a terrible idea.

    I”m not familiar with the tax situation, but I’m lead to believe that there maybe carry forward possibilities... so the answer may no be as obvious as the OP thinks, hence my question.


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    #10
    BailMeOut
    Registered Users Posts: 2,961 ✭✭✭BailMeOut


    There is no capital gains tax on any investments sold from your PRSA which could be a good reason to do this


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    #11
    tanit
    Registered Users Posts: 325 ✭✭tanit


    ATC110 wrote: »
    The answer seems obvious to me but is there any point in making contributions to a PRSA/pension in a given tax year when you have no tax liability anyway?

    The first thing here would be to check that indeed you have no tax liability. You have to be in very low wages not have a Paye liability, in which case you might be more interested as other say in having some other form of alternative savings that might be easier to access (are you a Paye worker and maybe that is the reason you believe you have no liabilities?)

    Also it depends on the kind of savings plans you might what to have in the future as well as your age and specific circumstances: are you planning buying a house in the near future? do you so savings for a raining day (ideally 6 months of money to get you through if you lose your job or have a similar situation)?, are you close to retirement age? do you work in place where they have a pension plan (it might be better to top up that one instead of a PRSA)?, etc

    You might want to talk with a savings expert (broker, bank, etc) about what to do with any spare money you have and always, always consider the levels of risk you can take with any investments and whether you might need to access it immediately or not in the near future.


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    #12
    The J Stands for Jay
    Registered Users Posts: 5,650 ✭✭✭The J Stands for Jay


    Jim2007 wrote: »
    I”m not familiar with the tax situation, but I’m lead to believe that there maybe carry forward possibilities... so the answer may no be as obvious as the OP thinks, hence my question.

    No carry forward, just the ability to back date contributions to the previous year.


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    #13
    RachelsCousin
    Closed Accounts Posts: 64 ✭✭RachelsCousin


    McGaggs wrote: »
    No carry forward, just the ability to back date contributions to the previous year.

    There are carry forward provisions. I've used it before when I accidentally overpaid into pension. There's even a space to fill it in on Form 12.


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    #14
    The J Stands for Jay
    Registered Users Posts: 5,650 ✭✭✭The J Stands for Jay


    RachelsCousin wrote: »
    There are carry forward provisions. I've used it before when I accidentally overpaid into pension. There's even a space to fill it in on Form 12.

    Oh, you're right. I'd totally forgotten about the special contribution rules.


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    #15
    The J Stands for Jay
    Registered Users Posts: 5,650 ✭✭✭The J Stands for Jay


    RachelsCousin wrote: »
    There are carry forward provisions. I've used it before when I accidentally overpaid into pension. There's even a space to fill it in on Form 12.

    This is the relevant chapter of the pension manual: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-04.pdf&ved=2ahUKEwjrxpf5jdfsAhXhVBUIHTPxB0QQFjAAegQIARAB&usg=AOvVaw0-BZT2PmaVM9c5gV0UZmy5

    I'm not sure if it would cover making a contribution in a year when there are no relevant earnings, but I'm too lazy to read it all the way through.


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    #16
    RachelsCousin
    Closed Accounts Posts: 64 ✭✭RachelsCousin


    McGaggs wrote: »
    This is the relevant chapter of the pension manual: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-04.pdf&ved=2ahUKEwjrxpf5jdfsAhXhVBUIHTPxB0QQFjAAegQIARAB&usg=AOvVaw0-BZT2PmaVM9c5gV0UZmy5

    I'm not sure if it would cover making a contribution in a year when there are no relevant earnings, but I'm too lazy to read it all the way through.
    Don't bother reading it. It's the wrong chapter.

    Special Contributions relate to employer contributions. Not what's being discussed here.

    Edit: correct chapter is 24. Carry forward is covered on page 5. https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-24.pdf


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