Pension on part time income

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Colin4444

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Hi,

Off the back of this thread: https://www.askaboutmoney.com/threads/is-a-pension-worth-it-if-youre-on-the-lower-tax-rate.213329/

Cant figure out all the numbers and %'s going on in that thread...

I work part time and on about 35k. turned 50 last year.. I'm maxing out my AVC at 25% (I thinks its this since I turned 50?)
My employer pays an additional 10%, so if I pay in 800 they pay an additional 80!
Im paying 10k in total into it every year, this was the figure we came to as it eliminates some fee Irish Life charge (cant remember which one!)

As I am on the lower tax bracket, is it worth while me paying into it?

Or am I getting it all wrong :)

I did a money makeover last year if it helps:

Moneymakeover - Money Makeover - advice on investing after sale of rental

Personal details Your age: 50 Your spouse's age: 46 Number and age of children: n/a Income and expenditure Annual gross income from employment or profession: 35,000 (part time) Annual gross income of spouse/partner: 56,000 Monthly take-home pay: 4,800 approx Type of employment - e.g...
www.askaboutmoney.com
 
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Colin4444 said:
Off the back of this thread: https://www.askaboutmoney.com/whats-new/posts/6932457/

Cant figure out all the numbers and %'s going on in that thread...

I work part time and on about 35k. turned 50 last year.. I'm maxing out my AVC at 25% (I thinks its this since I turned 50?)
My employer pays an additional 10%, so if I pay in 800 they pay an additional 80!
Im paying 10k in total into it every year, this was the figure we came to as it eliminates some fee Irish Life charge (cant remember which one!)

As I am on the lower tax bracket, is it worth while me paying into it?

Or am I getting it all wrong :)
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For a start you can actually contribute 30% of your income to you pension. Also, usually when an employer contributes 10%, that means they contribute 10% of your income (a lot of the times there is a certain minimum you have to match to get that contribution). If that is correct, then they would be contributing 3500 a year to your pension.

Personally I think it is worth it to contribute to your pension even on the lower rate. It is still a good deal and the growth is tax free which is a big bonus. If your employer contributes even better. However, if the size of your pension pot would mean you are paying the higher rate on retirement then maybe it is not worth doing.
 
Colin4444 said:
Annual gross income from employment or profession: 35,000 (part time)
Annual gross income of spouse/partner: 56,000
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Colin4444 said:
Value: 280
Rental income per year: 14,400
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Are you sure that you are on 20% tax?

I don't really know much about joint assessment but some of your income must be at the top rate. And they should be maxing their pension contributions to use up the entire top rate.

If your employer is matching your contributions, then you should max your contributions to match their maximum, whatever tax rate you are paying.
 
Brendan Burgess said:
Are you sure that you are on 20% tax?

I don't really know much about joint assessment but some of your income must be at the top rate.
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Good spot. Standard rate band for a married couple is €53K plus a maximum increase of €35K for the second earner. In this case €56K + €35K + €14K rental income must mean that at least some of the income is subject to 40% tax.

Tax rates, bands and reliefs

This page shows the tables that show the various tax band and rates together with tax reliefs for the current year and previous four years
www.revenue.ie www.revenue.ie
The €14K+ rental income also implies self assessment.
 
Hi guys, not jointly assessed, and yes the rental income is self accessed via form 11 each year.. so PAYE income is taxed on the lower rate, pay about €60 in paye each month
 
Connard said:
Personally I think it is worth it to contribute to your pension even on the lower rate. It is still a good deal and the growth is tax free which is a big bonus. If your employer contributes even better. However, if the size of your pension pot would mean you are paying the higher rate on retirement then maybe it is not worth doing.
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How do I figure what rate of tax I will be paying when I retire?

FYI This is what my employer pays: My employer pays an additional 10%, so if I pay in 800 they pay an additional 80!
 
ClubMan said:
ClubMan said:
Did you also read this key post?
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Just had a look.. so correct if Im wrong then..

- I am mortgage free on my PPR
- I am over 50, and not sure if I will ever be on 40% tax. maybe if the part time role falls through, but I hope not!
- my employer contributes 10% to any contribution I make

So I should be paying into pension even tho Im on 20% tax?
 
Brendan Burgess said:
And when thinking about pension contributions, it makes much more sense for the person paying 40% tax to max their contributions first.
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If the lower paid spouse is earning in excess of 35k it makes equal sense for them to also make pension contributions. They can get 40% tax relief on any pension contributions that don't take their taxable earnings below 35k.
 
S class said:
If the lower paid spouse is earning in excess of 35k it makes equal sense for them to also make pension contributions. They can get 40% tax relief on any pension contributions that don't take their taxable earnings below 35k
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Agree fully. I was simply pointing out that if they are making a limited contribution, first set it against the income on which 40% tax is being paid.
 
Brendan Burgess said:
Why not?

Joint assessment is never wrong.

When one person is paying 20% and the other is paying 40% , it is hugely advantageous.

And when thinking about pension contributions, it makes much more sense for the person paying 40% tax to max their contributions first.
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Actually dont know the answer to that :)
I think at the start we were both paying 40% tax, and then with the rental income in my name, it actually didnt make any difference at the time we looked at it whether we were jointly or individually accessed (this would have been back in to 2016)..
When I went part time a few years ago, never thought of it..

Any benefit now? We both max contribs to pension anyway?
 
Connard said:
It would depend on the size of your pension pot when you retire. It's really a guesstimate based on how much income you will have in retirement.
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Is it just your pension pot, or does it include savings and other investments you may have (I do realise you will have to pay CGT on investments)
I plan to have, all going well, approx 800k via both our pensions combined, and approx 600K in savings and investments by the age of 63 when I plan to retire (as this will be the age i will have made full PRSI contribs to get full state pension!).

As a guesstimate how much tax would I pay?
 
Colin4444 said:
Is it just your pension pot, or does it include savings and other investments you may have (I do realise you will have to pay CGT on investments)
I plan to have, all going well, approx 800k via both our pensions combined, and approx 600K in savings and investments by the age of 63 when I plan to retire (as this will be the age i will have made full PRSI contribs to get full state pension!).

As a guesstimate how much tax would I pay?
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I have no idea. Never really looked into it. You need to look at what your annual income would be and if it brings you into the higher tax bracket. Selling investments wouldn't count as that is CGT and not income tax. However, dividends probably would and other things that count as income. You can probably find a calculator online to help you figure out what an 800k in pension pot would give you as a pension and figure out the rest based on what you estimate you would earn from it. This is not something I know that much unfortunately.
 
Connard said:
You can probably find a calculator online to help you figure out what an 800k in pension pot would give you as a pension
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A common rough rule of thumb would be 25% or €200K tax free lump sum and then c. 4% of €600K p.a or €24K p.a. income. In many cases this pension income would be in addition to the OACP of up to c. €15K p.a. for an individual from age 66 or later.

The relevant standard rate tax band and tax credits are available here.

Tax rates, bands and reliefs

This page shows the tables that show the various tax band and rates together with tax reliefs for the current year and previous four years
www.revenue.ie www.revenue.ie

Older persons

This section explains the tax benefits and exemptions an older person can claim
www.revenue.ie www.revenue.ie
P.S. the 4% "rule" comes from this guy and is a common metric used in pension modelling.

William Bengen - Wikipedia

en.wikipedia.org en.wikipedia.org
 
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ClubMan said:
A common rough rule of thumb would be 25% or €200K tax free lump sum and then c. 4% of €600K p.a or €24K p.a. income. In many cases this pension income would be in addition to the OACP of up to c. €15K p.a. for an individual from age 66 or later.
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Thats doesnt look too bad
We would have 40k per yr (from pension and OAP)
But we have 800k aswell (from 200k tax free from pension and 600k saved)!

Is it beneficial to leave the tax free lump sum there, or not as you would just get taxed on it?
 
Colin4444 said:
Is it beneficial to leave the tax free lump sum there
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Would it ever be prudent not to take 25% tax free lump sum from pension

Just wondering if is practice to not take the tax free 200K and 50K @ 20% when drawing down a pension. I am 55 maxing out contributions but have an average sized combined DC and AVC PRSA pots of approx 500K. With another ten years left they will hopefully grow but realistically it will never...
www.askaboutmoney.com

Does it make sense to take the TFLS now or defer it as long as possible?

But the idea of deferring taking the lump sum and letting it grow tax-free is a good one. Hopefully the OP will post a Money Makeover thread and this will be discussed further. I thought it always made sense to take every cent of the tax free lump sum (TFLS)? There are investments, outside a...
www.askaboutmoney.com
 
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