MAXIMISE YOUR PENSION CONTRIBUTIONS IN IRELAND

Maximising your pension contributions in Ireland is a great way to provide you with an appropriate income for your retirement while reducing your tax bills.

Indeed, it helps you invest a suitable amount of money into your pension and allows you to save money on taxes every year. Contact us and we will help you calculate your max contribution limits.

Maximising your pension contributions in Ireland is a great way to provide you with an appropriate income for your retirement while minimising your tax bills.

Indeed, it helps you invest a suitable amount of money into your pension and allows you to save money on taxes every year. Contact us and we will help you calculate your max contribution limits. 

Should I max out my pension contributions in Ireland?

When it comes to maximising your pension contributions in Ireland, there are a few things you should bear in mind.

The most important thing is to ensure that you contribute the maximum amount possible under the scheme’s rules. This will help you to save as much money as possible on taxes and build up a healthy pension fund for your retirement.

Contributing to a pension is one of the smartest financial decisions, so take advantage of the pension tax breaks available and make the most of your pension fund.

Remember that there may be other benefits to contributing more than the minimum amount, such as eligibility for pension tax relief in Ireland. So it’s always worth checking with your provider to see if there are any opportunities to increase your contributions.

How to Maximise Pension Contributions?

1- Pension Tax Relief in Ireland

You should know that pension contributions in Ireland provide a means of paying less income tax.

It means that where 40% is the higher income tax rate if you are a higher rate taxpayer, a €150 contribution to your pension will only cost you €90 net.

If you had not made any contribution, the other €60 would have gone to the government as income tax. Up to Revenue Limits, pension fund contributions qualify for income tax relief.

Another tax benefit of having a pension is that they grow tax-free. Unlike investments in property or shares, your pension fund grows tax-free.

At retirement, you can take a lump sum of money completely tax-free or subject to a beneficial rate. The rest is taxable, usually taken as an ARF or an annuity.

Many people find themselves in a lower tax bracket so that they will make a net gain from pension tax relief.

2- Maximum Pension contributions for personal pensions

The maximum amount you can contribute to a pension in a year usually depends on your age and income. Revenue applies percentage limits to an individual’s contributions based on age, as explained below.

However, your earnings are limited to €115,000 per year to calculate maximum pension contributions in Ireland. It also means that pension tax relief is subject to a salary threshold of €115,000.

So only contributions deducted from the first €115,000 of your annual income are eligible for tax relief. Learn more here.

Example: Laura is 42 and earns €50,000 per annum from employment. Her maximum individual pension contribution is 25% of €50,000, so €12,500.

Laura’s marginal tax rates will depend on his personal circumstances, but a total marginal rate of 40% would be normal for someone on this income level.

Due to tax relief, making the €12,500 contribution to her pension will reduce Laura to only €7,500.

Example: Adam is 62 and earns €300,000 per annum. His maximum pension contribution is limited to €46,000,  40% of the maximum of €115,000.

Since retirement income is not a concern for Adam, he does not want to minimise his tax bill.

3- Employers’ Maximum Pension contributions to PRSAs

In Ireland, employers are not required to invest in a pension on your behalf. However, many employers contribute to a PRSA on behalf of their employees.

As of 2023, these employer contributions don’t count as benefits in kind and are not subject to income tax if their contributions are more than your tax relief percentage.

Example:  Yvonne is 43 and earns €54,000 per year. She contributes 10% of her salary, or €5,400 annually, to her PRSA. Her employer contributes 15% of the value of her salary, or €8,100 per year, to her PRSA. 

At 43, Yvonne’s tax relief limit is 25%. She can still make an AVC of 15% of her salary to her PRSA.

4- Employers contributions to occupational pension schemes

Employer contributions to occupational pension schemes are subject to different limitations regarding your earnings, service and how much money you currently have in your pension pot.

The limitations are usually higher than the individual limits. Plus, this is useful if you are a senior employee, as you can use employer contributions to maximise your pension contributions beyond the normal individual limits. 

Maximum Pension contribution Limits in Ireland

Revenue sets limits on the total contributions of employers and employees to occupational pension schemes. For employees in occupational pension schemes, there are a number of rules that must be followed:

The maximum pension you can receive from an occupational pension scheme is roughly 2/3 of your final salary. This limit may be lower if you have under 40 years of service at retirement and will be lower if you have under 10 years of reckonable service. 

Revenue caps the annual contributions you and your employer can make to an occupational pension scheme. Calculating these max pension contribution limits can be overwhelming; contact one of our financial advisors if you want to learn more about them.  

What we do:

• Help you set up a pension
• Review your old pension and help you change it if necessary
• Check your current pension and see if they are to your best advantage
• Evaluate if you can invest more money in your retirement
• Help you turn your pension into income at retirement
• Calculate maximum pension contribution limits

Tell us more about your situation. We will help you max out your pension contributions in Ireland.