r/irishpersonalfinance Sep 21 '21

What age are you, and how much is in your pension(s)? Retirement

With pensions in the news, I thought this would be an interesting discussion.

I am 30, and have 1 pension that currently contains €62,399.

I currently contribute 15% and my employer contributes 6%. Come January, I will up my contribution to 20%. I would have 2 pensions, but I merged them as my current one has much lower fees. My pension is 100% in Indexed Global Equity.

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u/macmillsy Sep 21 '21

I always thought that your employers contributions counted toward your overall tax free allowance?

So if you’re 30 and get tax relief of 20%, then that would be say 10% your contribution and 10% the employers… but if I did 20% and the employer did 10% then I would lose tax relief on the employers 10%…. No?

1

u/GuybrushThreewood Sep 21 '21

Your contributions attract tax relief i.e. your earnings for PAYE purposes are reduced by the contributions before your paye cutoff and credits are applied. So you could get 20% or 40% relief depending on your earnings. There are limits on tax relief available (age based and an overall limit).

Interestingly (okay it's not so interesting) for a PRSA employer contributions do attract tax relief for the employee, but this is cancelled out as they are also considered a taxable benefit in kind.

1

u/Pablo_Eskobar Sep 21 '21

Isn't it only deferred tax and you do pay it on draw down?

3

u/deeringc Sep 21 '21

Well, you might be earning at the higher rate of tax now and would therefore pay 40% income tax on that income. By putting it into the pension it first of all gets to grow for 40-50 years with compound growth/interest which is huge. But also, when you actually take your pension, the tax bands apply again, so you will pay no tax on the first chunk, 20% on the next chunk and only 40% above the higher rate of tax threshold (obviously those specific numbers might change by the time you retire, but the principle remains the same). The truth is that most private sector pensions are quite small in terms of what they pay out every year, so most people dont pay much or any of their pensions at the higher rate.