If you have a tendency to delay investments for your pension fund, we‘re going to share information that will motivate you to start the process ASAP. Pension funds in Ireland are one of the most effective ways you can save money from the jaws of tax mechanisms. To ensure citizens can save money for their future, the Irish government gives significant tax relief to encourage pension funds.
To put it simply, if your income qualifies you for the higher tax bracket, then the rate of your tax relief will also be higher. In the same way, a lower income means a lower tax relief rate. It doesn’t matter if you’re an employee, proprietary director, or self-employed – with just little financial information, you can make huge tax savings.
How Pension Funds in Ireland Work
For starters, you’re going to have to decide how much money you’re going to contribute towards your pension fund. Ideally, this has to be the money that you think will give you a comfortable retirement life. Once you’ve decided on this amount, the payroll section will do the rest for you by giving you the appropriate tax reduction for your contribution.
Employers in Ireland are not legally obliged to provide a pension scheme for employees, but that shouldn’t stop you exploring all the options. There is no obligation on an employer to provide a pension scheme for employees. If you are a member of a scheme, you might have specific rights that non-members do not. These rights could give you access to additional information and you may also get tax relief.
The revenue you can get from the tax relief fund is governed by the Revenue Commissioners.
Reforms for the Pension Funds in Ireland
Due to the reforms that were made to the State pension plan in 2020, the pension contribution structure in Ireland saw some significant changes. The most noticeable change was the introduction of an auto-enrolment pension plan. Because of a system like this, contributions from the state, the employer, and the employee have become mandatory.
The effect of a policy like this is that tax relief on pension funds has reduced from a generous 40% to a reduced 33%. Even though the finer details of the government plan were never released, an announcement like this makes it clear that the sooner you start, the better!
The Limits on Tax Relief
But with that being said, there are a few limitations on the pension contributions made by employers. Those two limits are:
- Percentage limit due to age
- Limit on total earnings
Percentage Limit Due to Age
The tax relief you get must be relevant to the age you are. The Irish government also makes sure that the benefits you receive are a specific percentage of your total income. Individuals can have several other secondary sources of income. If you do have other ways of earning money, the relief you get will depend on the source of income you’re using to make a contribution.
Here are the limits according to the ages:
|60 or over
The table below shows the maximum contribution that can be made at every age bracket.
|60 or over
Picking Your Pension Plan
If you own the shares of a company, you can enjoy the benefits of an occupational pension plan. In a case like this, you can also contribute to a PRSA AVC plan or a Group Additional Voluntary Contribution plan. If your earnings are non-PAYE, you can make your contributions towards a PRSA plan or the personal pension funds in Ireland.
Tax Savings through Pension Funds in Ireland for the Self-Employed
If you’re self-employed, you would have to calculate your tax liability yourself or getan accountant to do it for you. Once you’re done doing this, you’ll have to make the payment before the end of October. To ensure the payment process goes on smoothly, you also need to submit the Final Tax Assessment for the last year and the Preliminary Tax for the ongoing year. Like every other pension contribution made, self-employed abide by the same age and income restrictions listed above.
Picking a Pension Plan As a Self-Employed Individual
It is worth noting that self-employed individuals in Ireland can’t access occupational pension systems like employees of certain organizations. Because of this reason, the option they have is to either for personal pension funds in Ireland or to pick a private plan governed by an investment company or a life assurance company.
However, this still means that your pension plan will be subject to tax laws, and the benefits that come with tax reliefs will still be available to you. Applying for tax relief is easy, too. It can easily be done online through the Revenue Online Service (ROS).
Because of the various benefits of the pension system, people can make remarkable savings with collective pension payments. Even though some people might think that the whole plan is not worth their time and effort, it can be helpful to a specific individual in need. When you have a larger pot of savings at the time of your retirement, the lifestyle options available to you start to look a lot more attractive. However, to ensure that a grander lifestyle does not leave you broke, you need to have the appropriate resources.
To sum up, if you’ve been looking for a good excuse to get started with your pension fund in Ireland, this is the cue! Since state and pension reforms can change, you never know what’s coming your way as time passes by.
Strike the iron when it’s hot – start investing today!