UK pension and taxation

H

Homewardbound11

Registered User
Messages
28
Hi ,
quick question as I have at least online got approved for contributions back to 2006.

I will have a full Irish pension and I’m trying to work out if I pay for contributions from2006-2023, will my uk pension then be taxable here .
What I’m trying to work out is if the “payback “ time is really worth it if it is taxed at the current 41% or what ever it will be .

I haven’t the exact figures but I’ll put some down
10 years by 800-900 stg will be close to 11k im euro. I think this gets me 12/35 .
With 10 years would the UK pension not take 3-4 years to pay back and if this is taxable then is it worth while .
I’m sorry for the vagueness . I applied in March and got refused then appealed and heard nothing . I checked online and my status was processed in October . So in between I forgot all the exactness of figures .
 
DannyBoyD said:
Yes.
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Thanks DannyBoyD.
Is it then marginal rate of tax ?
It changes really as in my case the Payback years might extend to7-8 years . Would that be correct assuming I’m in the worst case scenario it having to buyback a minimum of 8 years to make 10 and ideally more than that
 
Homewardbound11 said:
I haven’t the exact figures but I’ll put some down
10 years by 800-900 stg will be close to 11k im euro. I think this gets me 12/35 .
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You must be paying the more expensive Class 3 contributions like me.

The full UK state pension is £11,500. A year of Class 3 contributions is £900 which gets you 1/35 of a full state pension or £330 a year. In pure cash terms the payback is about three years or five years if you are at the higher marginal rate.

A 55 year old Irish male is likely to live to 81 so an expected 14 years of pension drawdown. I think it’s worth it and I would recommend this to anyone under 67 without a diagnosis of a terminal illness.

FYI I am in my 40s and am making voluntary Class 3 contributions and feel it is good value.
 
Assuming that you cannot pay class 2 contributions, the current rate for class 3 contributions is £904.70/yr. So if you buy back 10 years it will cost you ~ £9000.

For that, you will get 10/35 or 28.5% of the UK state pension. The full pension is currently ~ £11,500 so you get £3,278 per year.

Assuming you get the full contributory state pension in Ireland, the rate is ~€14,400/yr. So at current exchange rates, your income will be ~€18,400.

At this level of income, your marginal rate of tax will be 20%. So the net benefit to you of buying back those 10 years will be £3,278 - 20% = £2622 per year. So your payback will be ~ 3.4 years.

It's good value no matter what way you cut it.
 
Thanks again everyone for the help . I’ve one more query and I hope this is not a stupid question ?
Is the Marginal rate of tax income under 44k in Ireland on income in retirement from pensions ?

and lastly , are or can married couples be assessed jointly in retirement for incomes for purposes like this . For example jointly assessed as my wife would have a less of a pension pot.

Ie married joint assessed jointly would be 84 k income before we are on the higher rate . Is this right to assume that is correct?
 
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Homewardbound11 said:
Is the Marginal rate of tax income under 44k in Ireland on income in retirement from pensions ?
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What exactly do you mean by marginal rate of income tax here?

Like any other income, pension income is assessable for income tax at 0%, 20% or 40% depending on the amount received. Other factors such as exemptions, standard rate cutoff point, credits, USC, PRSI (if applicable) etc. also impact the amount of tax and other deductions that apply.

How your income tax is calculated

Tax on income you earn from employment is deducted directly from your pay. Find out how this tax is calculated.
www.citizensinformation.ie

Taxation of pensions

How different types of pensions are taxed in Ireland.
www.citizensinformation.ie
 
Thanks. You have answered it I think .
What I’m asking : is the rates of tax and tax bands the same in retirement the same as when you are working . For my query above I am working out if you are considered jointly assessed in retirement the same as when working when it comes to incomes .
 
When working out your "payback" figures don't forget to allow for annual increases in the UK state pension.

Under the current triple lock rules the benefit will increase annually by at least 2.5% and sometimes more depending on inflation and /or wage increases.
 
Recall that there is no PRSI on pension income and once you are over 70 you will pay only 2% USC at the margin.

Kev1964 said:
Under the current triple lock rules the benefit will increase annually by at least 2.5% and sometimes more depending on inflation and /or wage increases.
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I don’t expect these to be in place if I’m drawing down in 35 years but short run it’s more likely it will remain generous.

There is currency risk here too. Long term sterling may lose value against the euro. Or it may gain, but it’s not quite the same as a euro asset.

@Homewardbound11 should make the contributions in almost all circumstances.
 

The three marginal income tax rates of 0%, 20% and 40% are the same for everybody.

People over 65 can get four possible extra income tax benefits:

(1) age tax credit = 245 per person
(2) exemption from income tax if income under 18k / 36k
(3) exemption from DIRT under some conditions
(4) lower rates of USC if you have a medical card
 

Note of course that effective tax rates tend to be lower in retirement.

If your retired income is 60% of your former gross, your retired net income will be more than 60% of your former net.

This is due to the progressivity of the income tax system.


Here is an example: my retired parents have a combined gross of 49k approx. Their tax and USC is 3,367.

So their effective direct tax rate is 7%.

This is such a great country.
 
Protocol said:
So their effective direct tax rate is 7%.
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This is true but for anyone with a decision to make on whether to make voluntary NICs the relevant rate to consider is the expected marginal rate in retirement. Most retirees don't pay at the higher rate but some do.

FWIW I'm likely to be a higher-rate taxpayer in retirement but I still think that voluntary Class 3 NICs are good value.
 
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