Dáil Éireann Debate, Thursday - 8 September 2022
419. Deputy Richard Bruton asked the Minister for Finance the amount that a worker can put into a pension savings plan with relief from income tax; the amount which their employer can put in on their behalf with relief from tax on business income; and if this varies with different types of pension plan. [44203/22]
Amharc ar fhreagraTax relief for employees may be granted for: contributions to an “exempt approved” occupational pension scheme under section 774 Taxes Consolidation Act 1997 (TCA); contributions to a statutory scheme under section 776 TCA; contributions to a retirement annuity under section 784 TCA; contributions to a Personal Retirement Savings Account (PRSA) under section 787C TCA; and for contributions to a qualifying overseas pension plan under section 787N TCA.
For individuals, the relief is granted at the marginal rate of income tax. The amount of contributions on which relief can be granted in a tax year is limited to an age-related percentage of the individual’s earnings, ranging from 15% for employees aged under 30 years to 40% for employees aged 60 years and over, and subject to an overall annual earnings cap of €115,000. The age-related percentage limits are set out below.
|
Up to age 30 |
15% of remuneration |
|
30 to 39 |
20% |
|
40 to 49 |
25% |
|
50 to 54 |
30% |
|
55 to 59 |
35% |
|
60 and over |
40% |
For example, where an individual aged under 30 has earnings of €50,000, the maximum tax-relieved amount that person can contribute to an occupational scheme in a tax year is €7,500 (€50,000 x 15%). The maximum tax relieved amount for any employee in a tax year is €46,000 (€115,000 x 40%) where the employee is aged 60 or over and has earnings equal to or greater than the earnings cap of €115,000.
Employee contributions in excess of the maximum tax-relieved amount can be treated as contributions for the previous year (if the individual did not fully utilise his or her tax relieved amount in that year) if the contribution is made before the return filing date for that year. For example, if an employee’s maximum tax relieved contribution in 2022 is €7,500, but he or she makes contributions of €10,000, the excess over €7,500 can be treated as a contribution for 2021 if it is made before the filing date for the 2021 tax return, which is 31 October 2022 or later if the return is filed through Revenue’s Online Service (ROS). Any unrelieved balance can be carried forward to claim relief in a future year.
Where an individual has two or more sources of income (for example, earnings from employment and profits from self-employment) and is making pension contributions to more than one pension product (for example, an occupational pension scheme and to an RAC/PRSA), the single aggregate earnings limit of €115,000 applies in determining the amount of tax relievable contributions.
There is no relief from either PRSI or the USC for pension contributions.
Employers get full tax deductibility against their profits for pension contributions on behalf of their employees, and this applies to all pension types. There is no upper limit on tax relief for employer contributions. However, occupational pension schemes are subject to a requirement that aggregate contributions to such schemes must not produce a fund that exceeds the amount that will provide a maximum pension on retirement to any scheme member of more than two-thirds of his/her final salary. In addition, an individual’s overall pension savings (including any employer contributions and including the individual’s aggregate pension savings in all products) is subject to an overall tax relieved limit, known as the Standard Fund Threshold (SFT), which is currently €2 million. I am advised that further guidance on employer contributions to occupational pension schemes is set out in Chapter 4 (Contributions by Employers) of the Revenue Pensions Manual.
Employer contributions to an occupational pension scheme are not treated as a taxable Benefit in Kind (BiK) and therefore do not give rise to a tax charge for the employee.
Employee contributions to PRSAs are treated the same as contributions to occupational pension schemes – tax relief is available subject to the age-related percentage of earnings and overall earnings cap. However, employer contributions to a PRSA on behalf of an employee are treated as a BiK of the employee, and only qualify for tax relief for the employee where the total of the employer and employee contributions for the year does not exceed the relevant age and earnings related limits of the employee. PRSAs are also subject to the Standard Fund Threshold of €2 million. Further guidance on employer contributions to PRSAs is set out in Chapter 24 of the aforementioned Revenue Pensions Manual.
