How much can you put into a pension?

There is a huge difference between how much you can put into a pension depending on whether you are paying into a personal pension/ PRSA or a company paid plan. I will go through the maximum amounts you can make and claim tax relief on the contributions. You can, of course, contribute more and not claim any tax relief but I have never seen this done.

Personal Pensions

The maximum you can contribute to a Personal Pension is as a percentage of earnings, on a sliding scale based on your age. There only limit on the size of the fund you can have in retirement is the maximum threshold of €2m (you’ll be doing well to hit that threshold purely from personal contributions).

• Under 30 – 15% of earnings
• 30 – 39 – 20% of earnings
• 40 – 49 – 25% of earnings
• 50 – 54 – 30% of earnings
• 55 – 59 – 35% of earnings
• 60 and over – 40% of earnings

There is an earnings cap applied to, so you can only make tax relievable contributions based on €115,000 of income. For example, if you are 50 years of age and earn €150,000, the maximum contribution you can make is €34,500 (€115,000 x 30%).

PRSA’s

Under PRSa’s, both company and personal contributions can be made to the plan. The limit is the same as under personal pension plans.

Any employer paid contributions to an employee’s PRSA is treated as a benefit in kind. This is cancelled out by the employee claiming tax relief on the contribution. The BIK is however, subject to USC.

Company Paid Contributions

The maximum pension you are allowed to have from a company pension scheme is 2/3 of final salary i.e. salary of €100,000, the maximum pension allowed is €67,000. The Revenue use a formula to calculate the maximum that can be contributed each year.

It is based around the maximum pension you can have based on your salary and years service to retirement, less any accrued benefits and the amount of time to retirement. The Revenue now also recognise that a pension paid from age 60 is worth more than a pension paid from 65, so they have their own “Capitalisation Factors” which have to be used.

Contribution = (maximum pension allowed based on current salary and service to retirement) x Revenue Capitalisation Factor – value of current pension assets/ years from retirement

Example

A male with 25 years service and 15 years to retirement at age 65. He already has €250,000 in his pension pot.

(2/3 x €100,000) x 28.4 – €250,000 / 15

1,643,000/15 = €109,500

The company can contribute €109,500 to his pension for the next 15 years.

If you have any questions, please contact me directly at steven@bluewaterfp.ie