How does the Budget effect my pension?

 

This is particularly relevant to anyone who usually pays a pension contribution in October for the previous tax year and also people who earn over €150,000 per annum.

Changes to PRSI

From January 2011 contributions to pensions will no longer avail of PRSI relief. The important thing to note is this is somewhat retrospective, because if you pay in 2011 in respect of the 2010 tax year you won’t be allowed to claim PRSI/Levy relief.

If however you make your contribution for 2010 in 2010, ie before the end of the month you can claim the relief.

Changes to maximum salaries.

At the moment the amount you can pay into your pension is related to your age and your salary. Age restrictions are as follows:

Age Percentage of Earnings you can contribute
Up to 29 15%
30-39 20%
40-50 25%
50-54 30%
55-59 35%
60 or over 40%

Currently the salary restriction is €150,000 however from January it will be €115,000. This means if you earn more than €115,000 your earnings above this figure are not recognised for pension purposes.

Worked example

Joe earns €150,000 per annum and each year makes a contribution in October based on his previous tax years earnings. He always contributes the maximum he can. He is 42 years old.

  2010 2011
Salary €150,000 €150,000
Maximum contribution allowed €37,500 (150k*25%) €28,750 (€115K *25%)
PRSI/Health Levy Relief (assumed @ 8%) €3,000 €0
Income Tax Relief €14,350 €11,787.50
Net Cost of contribution €17,350 €16,962

 

In other words for an additional outlay now of approximately €400 you can get an additional €8,750 into your pension fund.

What you need to do?

If you want to make a payment into your pension before year end then I can organise it for you. If you are already a member of an occupational pension scheme that is ok we can set up a PRSA AVC, if you already have an AVC that’s ok too we can either use that or you are entitled to set up a PRSA AVC.

If you have no pension and are either an employee or are self employed we would still have time to set this up for you before the year end.

Just call me on 0876445533 or eoin@festinosolutions.com

NB: There were also changes to maximum pension fund allowed and the maximum tax free cash you can take from your fund but a separate note will be written on this.