Pension Opportunity in Ireland

Have you recovered yet from the news of the The National Recovery Plan, 2011 – 2014, a.k.a. The Plan?

There are always opportunities when governments move the goalposts.  One area is pensions.  At present a person making a pension contribution can get back income tax at their marginal rate (say 41%) and they can also get back PRSI and Health Levy on that contribution.  There are different rates depending on level of income and whether you are an employee or self-employed.

For example – Employee earning €75,000 salary p.a.

Employee PRSI @ 4% plus Health Levy @ 4% plus marginal tax rate @ 41% = 49%. So a €10,000 pension contribution by this employee means getting back 49% = €4,900. The 2010 investment costing the employee €5,100 results in €10,000 going into his pension fund.  This can be a once-off contribution or annual contribution, although future contributions will be subject to the rules of those tax years. 

The Plan proposes to get rid of the relief for employee PRSI and Health Levy for 2011. That’s 8% of the contribution. So, if you are lucky enough to have money on deposit, putting some money into a pension will get you better value in 2010 than in the future. Furthermore the maximum tax relief rate of 41% in 2010 will reduce to 34% in 2012, 27% in 2013 and to 20% from 2014.  

In 2014, a €10,000 pension contribution will cost the employee €8,000.

In 2011, a €10,000 pension contribution will cost the employee €5,100.

If you’re thinking about making pension contributions over the next few years, do it as early as possible! As there are various rules concerning pension funding, I am advising you to take professional advice first. Any P.I.B.A. broker who works in pensions should be able to help you. If you want any guidance, feel free to contact us.

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