Employer's PRSA has high contribution fee - is it possible to open a second one?

[Andrew Duffy]

I can't find great answers for this, so I'll pose the question and hope someone doesn't reply with a thread that answers it.

My employer contributes a maximum of 5% of my income to a PRSA, provided I contribute at least 4.2%. The PRSA offered has an uncompetitive 4% contribution fee and a 1% management fee. As I'm under 30, this leaves me with 5.8% of my income* that I can avail of tax relief on if I put it in a pension. Can I open a second PRSA through a broker to eliminate the contribution fee on that remaining percentage?

* Does my employer's 5% contribution raise my gross income by 5%, thus leaving me with more than 5.8% to invest?

I should add that I am getting professional advice about financial management, but I'd like to know a bit more about the rules before my meeting.

 

[ClubMan]

Can I open a second PRSA through a broker to eliminate the contribution fee on that remaining percentage?

As far as I know you can.

* Does my employer's 5% contribution actually raise my gross income by 5% and thus leave me with 6.55% and not 5.8%?

The employer 5% and your 4.2% would normally be calculated on your "standard" gross - so the amount invested in your PRSA is surely 5% employer + 4.2% employee = 9.2% x 96% (i.e. 4% per contribution charge) = 8.832% of your gross?

 

[Andrew Duffy]

Is the contribution fee considered by revenue when determining what portion of income can be contributed tax-free? In any case, the second question is whether the gross income for the purpose of working out what 15% of it is is actually what I get paid or what I get paid plus the extra 5% pension contribution.

 

[asdfg]

As far as I'm aware revenue take your gross salary which includes bonuses, BIK, notional salary etc. In other words whats on your p60. You can then contribute up to 15% of this figure. The employers percentage does not come into the calculation.
You can also contribute to a pension of up to 15% of last years income less what you have already paid provided you do so before 31/10/07.
You can also contribute in excess of this 15% if you so wish but you won't get tax relief on the contributions.

 

[ClubMan]

As far as I'm aware revenue take your gross salary which includes bonuses, BIK, notional salary etc. In other words whats on your p60. You can then contribute up to 15% of this figure.

This is not correct for people already making pension contributions via payroll since the P60 figure is the gross less employee pension contributions plus other notional income such as BIKs.

On the general point of whether or not the employer's contribution eats into the overall individual's pension tax relief limit it does for PRSAs but not for occupational schemes as far as I recall.

 

[G123]

On the general point of whether or not the employer's contribution eats into the overall individual's pension tax relief limit it does for PRSAs but not for occupational schemes as far as I recall.

It's a while since I looked at this but surely, assuming age etc., an employee can contribute 15% of their income into a pension irrespective of the employer's contribution.

The overall contribution from both employer and employee would then be limited by the size of the fund - i.e. normal overfunding limits etc.

Can someone clarify this?

 

[asdfg]

While Clubman is correct many occupational pension schemes deduct the employees contribution as a net deduction thereby leaving the gross salary as 100%
This then becomes the P60 figure

Example

Salary 5000
5% 250
Liable to tax 4750


Salary 5000
Less
Tax
Pension 133*


*Calc - Off salary
Gross Pension 250
tax 47% 117
Net Pension 133

Hope this makes sense !!!!

 

[Guest126]

It's a while since I looked at this but surely, assuming age etc., an employee can contribute 15% of their income into a pension irrespective of the employer's contribution.

The overall contribution from both employer and employee would then be limited by the size of the fund - i.e. normal overfunding limits etc.

Can someone clarify this?

No - the Employer amount must be deducted!