Tax Relief for Pension Contributions

 Section 790A of the Taxes Consolidation Act 1997 (TCA) provides that an aggregate earnings limit applies for the purposes of giving income tax relief to an individual on contributions made to certain pension products . This limit is currently €115,000. Tax relief for pension contributions by an individual is subject to two main limits. 

The first is an age-related percentage limit of an individual’s remuneration/net relevant earnings (section 774(7)(c) TCA for occupational pension schemes with similar provisions in section 787 for RACs and section 787E for PRSAs). The maximum pension contribution in respect of which an individual may claim tax relief may not exceed the relevant age-related percentage of the individual’s remuneration/net relevant earnings in any year.

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In addition, section 790A TCA places an overall upper limit on the amount of remuneration/net relevant earnings that may be taken into account for tax relief purposes. The earnings limit is €115,000 since 2011 . This limit applies whether an individual is contributing to a single pension product or to more than one pension product.

The age related limits are
  • Up to age 30 - 15%
  • Age 30 to 39 - 20%
  • Age 40 to 49 - 25%
  • Age 50 to 54 - 30%
  • Age 55 to 59 - 35%
  • Age 60 plus - 40%

Contributions to a single pension product

Where an individual is contributing to a single pension product, the maximum tax relievable pension contribution is the relevant age-related percentage of the lower of: the individual’s remuneration/net relevant earnings and the earnings limit. 


Example 1 

An individual aged 50 with earnings of €200,000 in 2020 and making contributions to an occupational pension scheme may claim tax relief on the lower of the actual contributions paid and 30% of the earnings limit of €115,000 (€34,500). If the individual is making contributions of 25% of salary (in this case, €50,000) tax relief would be limited to contributions of €34,500 (the lower of €50,000 - the actual contribution made - and €34,500 - 30% of €115,000). 

If the individual is making contributions of 17% of salary (€34,000) s/he could claim tax relief on the full amount, as this is lower than 30% of €115,000. 


Example 2 

An individual aged 40 with self-employed income (net relevant earnings) of €100,000 in 2020 and paying premiums to a personal pension plan may claim tax relief on the lower of:  the actual premiums/contributions paid and  25% of €100,000 (= €25,000) If the individual is paying premiums/contributions of €30,000, the amount on which tax relief could be claimed would be limited to €25,000. If the premiums/ contributions paid were €25,000 or less, relief could be claimed on the full amount.

Contributions to more than one pension product

Where an individual has two sources of income (for example, earnings from employment and profits from self-employment) and is making pension contributions to an occupational pension scheme and to a personal pension plan, a single aggregate earnings limit of €115,000 applies in determining the amount of tax relievable contributions.

Example  

Mary has earnings from employment of €100,000 in 2020. She also has self-employed income of €100,000. 

She is aged 28 and is required to make a contribution of 10% of salary (i.e. €10,000) to an occupational pension scheme established by her employer.

As Mary’s is aged under 30 years, the maximum allowable tax relievable contribution she can make in respect of her employment earnings is 15% of her salary, which is €15,000.


What is Mary’s scope for making further tax relievable pension contributions? 


For her employment income, Mary could check with her scheme administrator or pension advisor to see if she has scope to secure extra benefits through additional voluntary contributions (AVCs). If such scope exists, she could make tax relievable AVCs of up to an additional 5% of her employment earnings (up to €5,000). 

The pension contributions Mary is making in respect of her employment earnings of €100,000 counts towards the aggregate earnings limit of €115,000, which leaves a balance of €15,000 of the limit. Mary’s capacity to make tax relievable contributions to a personal pension plan in respect of her self-employed earnings is restricted to a maximum of 15% of €15,000 (i.e. €2,250). This is the position irrespective of whether Mary decides to make an AVC. 

Example 

Michael, aged 51, has earnings from an employment of €180,000 in 2020. He also has self-employed income of €100,000. 

Michael makes the following pension contributions: 10% of salary (€18,000) which he is required to make to an occupational pension scheme established by his employer, and  15% of self-employed earnings (€15,000) to a PRSA. 


Because Michael is aged between 50 and 55 years, the maximum pension contributions to the occupational pension scheme on which he is entitled to claim tax relief for 2020 is the lower of his actual contributions (i.e. €18,000) and 30% of the earnings limit of €115,000 (i.e. €34,500). 


As Michael’s contributions are €18,000 he can claim relief on that amount. However, no tax relief is due in 2020 for Michael’s contributions to the PRSA as he has used up his aggregate earnings limit in contributing to his occupational pension scheme. As in the previous example, if Michael has scope to make AVCs, he could increase the amount of tax relievable contributions on his earnings from employment by up to €16,500: Maximum tax relievable contribution permissible (€115,000 x 30%) €34,500 less the contribution made to the occupational pension scheme (€18,000) Maximum potential additional tax relievable contributions €16,500.

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