It is encouraging to see how wellbeing programmes are becoming more popular in Ireland and the increased focus on mental health is so welcome. This is reflected not only in the conversations we are having with family and friends but also the growing number of workplace initiatives being put in place which provide a range of support to employees. It is clear we are all making positive strides when it comes to our personal health and emotional wellbeing but can the same be said when it comes to our financial wellbeing? What does that conversation even sound like? What are the tools and resources available to me? Throw the word pension in the mix and well … you’ve suddenly lost the crowd!
What is financial wellbeing?
Financial wellbeing is about being in control of your finances – what you spend, save and plan for – so that you are well positioned to meet your long-term goals. Clearly the financial choices you make (or defer as the case may be) will have a huge impact on your future. Financial security is a key contributor to our wellbeing. While financial security in the short-to-medium-term can be provided by a good salary and benefits package, in the longer term the best way to achieve it is through a pension. The problem for most of us is when we think of the future or specifically retirement, it can be easy to put it out of mind as something that is not so important right now.
Tax relief is by far the greatest advantage of saving into a pension. Income tax relief is still available on contributions made personally to a personal pension plan, PRSA or employee /Additional Voluntary Contributions (AVCs) to an occupational pension scheme. Income tax relief is available on up to 40% of the contribution for a top rate taxpayer, or 20% for a standard rate taxpayer.
If you are paying tax on your salary at the highest rate, you are entitled to a 40% saving on any pension contributions you make.
|You Pay||The Government Pays||Total Invested|
In this example, a 25 year old making a pension contribution of €200 a month could grow a pension plan to over €190,000* at age 65. The old adage “all good things come to those who wait” is certainly not the case when you are talking pensions and the effect of compounding. Over a 40-year period, a 25 year old will generate a 60% greater return than the person starting 10 years later.
*The figures assume a start date 30.08.2019, gross investment return of 4.2%, 1% AMC, level premium of €200
Revenue “Pay and File” deadline
As we approach the Revenue “Pay and File” deadline, you have the opportunity to make a pension contribution to reduce your income tax liability and to potentially grow your retirement pension pot.
Those who both pay and file their tax returns through the Revenue Online Service (ROS) have until the 12th November 2019 to pay a pension contribution and elect to backdate the income tax relief against the 2018 tax year. Those who do not qualify for the ROS extension must do this by 31st October 2019.
Backdating Income Tax Relief
If you are self-employed and you wish to make a personal pension or PRSA contribution and backdate the income tax relief against your 2018 earnings, you will need to:
- Pay the contribution to your pension provider on or before the return filing date, and
- Submit your tax return to Revenue on or before the return filing date
Can Employees avail of the Tax Deadline?
If you are an employee, you also have the opportunity to pay a pension contribution and set it against your 2018 tax bill. To claim income tax relief, you must pay your contribution to the appropriate pension contract for your circumstances.
- PRSA or Personal Pension: where you are an employee with Schedule E income during 2019 but not a member of your employer’s company pension scheme.
- AVC or PRSA AVC: where you are an employee with Schedule E income during 2018, a member of your employer’s company pension scheme during 2019 and still in that same employment.
Maximum Pension Contributions Allowed
For contributions paid in 2019 and set against 2018 earnings, an earnings cap of €115,000 applies for tax relief purposes to the total contributions to PRSAs, personal pensions and employee / AVC contributions to occupational pension schemes. The following table sets out the maximum allowable tax relief limits for pension contributions based on increasing age bands:
|Age||% of Net Relevant Earnings|
|Up to 29||15%|
|30 – 39||20%|
|40 – 49||25%|
|50 – 54||30%|
|55 – 59||35%|
Source: The Pensions Authority www.PensionsAuthority.ie
The need for professional retirement advice has never been more important. Based on our experience with clients, many people incorrectly tend to view the deadline as simply an opportunity to reduce their income tax bill. This may be true, but it is equally important to consider how your current and historic pension contributions are invested. Seeking the advice of a financial advisor puts you in the best position to make the positive changes required to understand what financial wellbeing means to you, so you are well positioned to meet your long-term goals.
Cantor Fitzgerald can work with you to review your pension arrangements and formulate a cohesive retirement and investment strategy. We understand that retirement can mean different things to different people and have a range of pension solutions to suit your individual pension needs.
Laura Reidy is Head of Pensions with Cantor Fitzgerald Ireland.
To speak with a Portfolio Manager or Account Executive, please phone the Cantor Fitzgerald dealing desk on 01 633 3633.