Making the most of Pension Tax Relief
Irish Medical Organisation

Making the most of Pension Tax Relief

In Budget 2016 pensions were left relatively unscathed and no changes to pension tax relief were made. As a health specialist, you are entitled to claim tax relief, in respect of pension contributions that you have made to a Personal Pension (RAC), a Personal Retirement Savings Account (PRSA), or an Additional Voluntary Contribution (AVC) arrangement.
 

The percentage of tax relief available on any such pension contributions is age-related and the limits are shown in the following table:
 

Age attained in year in which tax relief is being claimed Limit as a Percentage of Net Relevant Earnings (*)

Age attained in year in which tax relief is being claimed

Limit as a Percentage of Net Relevant Earnings (*)

Under age 30

15%

30 to 39 years

20%

40 to 49 years

25%

50 to 54 years

30%

55 to 59 years

35%

60 years +

40%

*The earnings cap (i.e. maximum allowable earnings for tax relief purposes) is currently €115,000.

Dual Incomes
Health specialists who have more than one source of income are also subject to “Dual Income Rules” with regard to tax relief on pension contributions. This is covered by “Tax Briefing 74” (published by the Revenue on September 7th 2009) and “Tax Briefing Issue 11 - 2010” (published by the Revenue on September 7th 2010).

The effect of the Revenue Tax Briefings is that many health specialists who are contributing to the HSE or the GMS Superannuation Schemes may not actually be entitled to tax relief on some or all of the Personal Pension (RAC) / PRSA contributions if some, or all, of their pensionable HSE/GMS income is more than €115,000.

Making Additional Voluntary Contributions (AVCs) or Standalone PRSA-AVC Contributions in respect of their pensionable income may now be the only option open to them to optimise pension tax relief.
Contributions to a Standalone PRSA-AVC’s are a very attractive option in that they offer:

1. Full transparency on charges.
2. Flexibility on contribution amounts.
3. Choice of investment funds.

Example 1 - GP

Typically a GP will normally have two sources of income, GMS and Private income.

Taking a GP, aged 40, earning €60,000 GMS income and €40,000 private income, they can contribute up to 25% of earnings based on the age related limits to a pension and receive full tax relief on contributions. They have the choice to invest in an AVC for their GMS income and Personal Pension for their private income (assuming no other pension contributions).

Based on a GMS contribution to the main scheme of 5% of GMS earnings (€3,000), this allows for a further payment to an AVC for GMS earnings of 20% or €12,000.

This then allows for further contributions to a Personal Pension Plan of 25% of their private income of €40,000 which would give a further pension contribution of €10,000 which also received full tax relief.

Total pension contributions invested are €25,000 - €3,000 as part of the GMS scheme contribution with a further AVC amount of €22,000 between GMS earnings and Personal earnings.

If the money was instead taken home it would be subject to income tax plus further deductions of PRSI and USC.

Example 2 - Consultant


A hospital consultant aged 42 has earning €160,000 in a HSE public capacity and private earnings of €100,000 may invest a maximum of 25% of the maximum earnings limit of €115,000 (€28,750) in a pension between the HSE scheme and private earnings on which they will be entitled to claim tax relief.

If the hospital consultant were contributing 10% (€16,000) to the main scheme then this would allow scope for a further AVC contribution of €12,750 which has to be contributed under their public earnings first.

On this basis the full tax relief for pension contributions will be used on the public earnings with no scope left for funding on an individual basis.


How can IMO Financial Services help you?
At IMO Financial Services we can advise you with regard to all these issues and more.
We have the specialist knowledge to help you ensure that you are not closing windows of opportunity with regard to retirement provision and tax reduction.

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