Pension Lump Sums
Anyone can do a lump sum to their pension up until the 31st of October 2017 and get tax back for the 2016 tax year, assuming you had a tax bill. If you pay and file online, you have a slight extension of time to the 14th of November 2017. Your Advisor can tell you the best pension vehicle, based on revenue rules and charges from the relevant companies depending on your employment status.
Why would you do a lump sum to your pension? Because you get tax relief at your marginal rate of tax.
For a single assessed person, you pay 40% income tax on everything you earn over €33,800 and 20% on everything below. If you are paying tax at the higher rate, you get relief at the higher rate, and vice versa. Here is an example:
Pension contribution of €2,000
|Tax Relief @ 20% = €400||Tax Relief @ 40% = €800|
|Overall Cost: €1,600||Overall Cost: €1,200|
The tax relief is quite generous, so the Revenue limits on how much you can contribute personally, based on age, and with a salary cap of €115,000.
Age Percent of Earnings
Under 30 15%
30 – 40 20%
40 – 50 25%
50 – 54 30%
55 – 59 35%
60 + 40%
For example, if you are age 35 and you earned €60,000 in 2016 you can do a lump sum of up to €12,000 (20% based on age) and receive a tax refund of 40% on that contribution. In this case, €4,800 (40% x €12,000). The overall “cost” to the individual is €7,200, and the €12,000 gets invested into your long term (pension) savings where any growth is completely tax free until you reach your normal retirement age.
How much an individual does comes down to affordability.
Are you a company director or does your employer contribute to your pension? There are very generous company reliefs in place, in addition to the above individual pension limits. These are based on years to retirement, salary, and the overall pension cap of €2,000,000. Contact us today to discuss your options.