Our aim in this tax section is to point you in the right direction concerning the tax system in Ireland, rather than supplying all tax data out there. There were no major changes to pensions relief announced in Budget 2007.
The area of pensions can be an extremely complex area of the system. We will thus confine ourselves to the following basic points:-
Pensions represent one of the most generous tax reliefs offers by the Government as they aim to help people save for their retirement.
In the Budget for 2006, the Minister has signalled a departure from previous treatment concerning pensions. It is proposed tax will now be applied to large funds.
Measures proposed were:
Cap on Pension Fund for tax purposes - the maximum individual pension fund on which pensions tax relief will be granted is €5M (to be indexed annually).
When the fund is drawn down, any tax due will be applied.
Tax free lump sums - usually taken on retirement; these are now limited to 25% of the maximum tax free fund (€5M).
ARF Tax - assets in an ARF to be taxed as follows:
- 2007: 1%
- 2008: 2%
- 2009: 3%
You can reduce your income tax bill substantially every year, as certain amounts paid to approved pension funds are tax deductible against the top rate of Income Tax. There is an income cap of €254,000 on which relief applies.
If you pay a material amount of tax at the top rate (42%), it can boil down to this: either pay an amount into an approved pension scheme, or suffer significantly higher income tax AND PRSI contributions.
The approved pension fund also gets favourable tax treatment from the Government thus helping your fund. Remember, of course that nothing is set in stone, and that investments may underperform, and your pension is a type of investment. You will also not be able take out the funds until you are close to retirement without suffering an exit penalty tax.
In 2003, a new type of pension aimed at self-employed people and people in temporary employment situations was introduced called the PRSA.
Levels of tax relief for the PRSA are age related and are as follows:-
Age
% of income against which relief can be claimed
2007 - 2003
Less than 30 years old
15%
Aged 30 - 39
20%
Aged 40 - 49
25%
Over 50
30%
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For further information, please visit The Pensions Board web site for further details.
Pensions