Generally no.If you get the higher rate of tax relief while paying contributions but also end up paying the higher rate at drawdown (lets say your fund did really well and pot was big), does this negate the tax benefit of pensions ?
ok thanks and at what level do you start paying the higher rate upon retirement ? Lets say a married person but assessed separatelyGenerally no.
There is the theoretical case of someone getting relief at the 20% rate on contributions and paying 41% on drawdown. This would be somewhat inefficient but I suspect it barely exists in reality as someone earning that little is unlikely to have a pension pot large enough to be taxed at 41% on drawdown. In any case capital gains within your pension fund are CGT-free which doesn't really exist with other investments.
Otherwise pension contribution is for many people doubly efficient in Ireland as most employees pay 41% marginal rate when in employment (and get relief at that) but most pay 20% in retirement due to lower income.
ok thanks and at what level do you start paying the higher rate upon retirement ? Lets say a married person but assessed separately
I think it's 40% after €40k but I am never very good with bands and credits.ok thanks and at what level do you start paying the higher rate upon retirement ?
You pay prsi on your contributions. You will pay prsi on ARF drawdowns up to age 66.Is it correct in saying that you pay PRSI at contribution time and pay PRSI again at withdrawl ?
So you wouldn't recommend a pension ?You pay prsi on your contributions. You will pay prsi on ARF drawdowns up to age 66.
There is no prsi charged on an annuity or occupational pension. You also pay USC on contributions and again on any pension income. If you were liable to USC at 8% you could be paying taxes of up to 52% on your pension.
Awesome, thanksLet’s say you amass a pension fund of €2m on retirement.
You take a lump sum of €500k (25% of €2m). The first €200k is tax free and the €300k balance is taxed @20%.
You transfer €1.5m to an ARF and start drawing it down @4% (€60k) per annum from 60.
If you’re single, total deductions (income tax, USC and PRSI) on €60k come to €16,797 as things stand. That’s an effective tax rate of 28% on the ARF drawdowns.
And PRSI falls away at 66.
In other words, pensions are highly efficient from a tax perspective if you are getting relief @40% right up to a pension fund of €2m, even if the tax efficiency starts to gradually diminish after €800k (because of the €200k cap on the tax free lump).
The important point is to look at the effective (or blended) rate of tax paid on drawdowns and not to focus on the fact that a portion of the drawdown is taxed at 40%+.
Hope that helps.
It depends on the pension type.If you retire at 60, can you get the lump sum then or can you only get that at 66
What are you going to live on in retirement? You need something. Pensions are a fairly efficient way of saving. You get tax relief on the way in, fund grows tax free (mainly).So you wouldn't recommend a pension ?
So it's best to finish work at 60 if possible ?It depends on the pension type.
For example, occupational pensions/PRBs can generally be retired @50, whereas private pensions can only be retired @60.
But in no case would you have to wait until 66.
However, bear in mind that from 60 deemed withdrawals from an ARF kick in, which may not suit if you are still working.
Yes I have a pension but a poster above said you might end up paying 52% on pension at retirement which would make them a poor choiceWhat are you going to live on in retirement? You need something. Pensions are a fairly efficient way of saving. You get tax relief on the way in, fund grows tax free (mainly).
Not necessarily, it entirely depends on your circumstances.So it's best to finish work at 60 if possible ?
Even with a pension pot as high as €2m, your effective rate on drawdown would be a lot lower than 52%.Yes I have a pension but a poster above said you might end up paying 52% on pension at retirement which would make them a poor choice
ok so it seems the poster above was wrongNot necessarily, it entirely depends on your circumstances.
Even with a pension pot as high as €2m, your effective rate on drawdown would be a lot lower than 52%.
No, they weren't wrong. You could end up paying high rate tax, you could end up paying low rate tax, you could end up paying no tax. It entirely depends on your circumstances, your pension pot, how and when you draw it down etc. Without some indicative figures and outline plans it's impossible to be more specific in the general case. But, for the vast majority of people, once they have no high cost debts and own their own home (even with a mortgage), saving for retirement via a pension is usually the next most important financial decision and a no-brainer due to the significant tax advantages on contributions, growth, and drawdown.ok so it seems the poster above was wrong
You are just mixing up the difference between the marginal tax rate and the effective tax rate. They were right to say that a portion of your pension could be taxed at 52% in a worst case scenario. However Sarenco has nicely outlined that even in this scenario, the effective tax rate is really low.ok so it seems the poster above was wrong
ok thanks.You are just mixing up the difference between the marginal tax rate and the effective tax rate. They were right to say that a portion of your pension could be taxed at 52% in a worst case scenario. However Sarenco has nicely outlined that even in this scenario, the effective tax rate is really low.
If feels like you are trying to use an outlier hypothetical scenario to justify not contributing to your pension. Maybe if you explained your actual situation, people could help you with the maths and put you at ease.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?