Taxation Benefits

The net cost or the ‘real’ cost to you, of contributing to your pension plan, isn’t as high as you would initially think. To encourage you to save for your pension the Government provides generous tax relief at your highest tax rate. If you pay tax at the higher rate then you get tax relief at that rate, so for each €100 that you save in your pension, the net cost to you is €60.

Are there any limits on pension savings?

The Government have set limits on the amount that you can save into your pension plan and get tax relief on. These limits are very generous and are based on your income and age and they are subject to a maximum earnings limit*.

The table below outlines the percentage of your income that you can get tax relief on when contributing to a pension plan.

Age                     Maximum % of earnings allowable for tax relief on your pension contributions
Under 30           15%
30 – 39                20%
40 – 49                25%
50 – 54                30%
55 – 59                35%
60 and over      40%

If you are a member of an occupational pension scheme, the maximum contribution levels for tax relief relate to the total employee contributions to any occupational pension schemes.

For Group PRSAs, these levels include the employee as well as any employer contributions.

PRSA (Employer contributions)

Any employer contributions made to a PRSA on your behalf are treated as a Benefit-in-Kind (BIK). While these contributions do qualify for income tax relief, they don’t qualify for relief from PRSI or the Universal Social Charge.

Earnings Limit and Maximum Fund Size

*The maximum earnings limit from 2011 is €115,000. The earnings limit is subject to review and change each year. There is no maximum payment that can be made, but you may only claim tax relief within the above limits. There are also limits on the benefits that may be provided.

There are also limits on the pension that may be provided at retirement.There is a maximum Revenue-allowable total pensions fund on retirement. This is known as the Standard Fund Threshold (STF).

Under current legislation, the maximum pension fund allowable for tax relief purposes is €2.3 million (this maximum amount includes any pension benefits already taken together with pension benefits yet to be taken). The maximum will apply to the aggregate value of all pension provision held for an individual. Any fund in excess of this amount will be liable to a once off income tax charge at the top rate of tax (currently 40%) when it is drawn down on retirement. This limit may be adjusted annually in line with an earnings index.

Please note that the Revenue Commissioners have also placed limits on the total amount that can be contributed by you and your employer to your occupational pension plan. Please contact us for further details.