A Pension is for Life, Not Just for the Pay and File Deadline
October brings with it change, leaves shedding, natures best crayons, fewer hours of daylight and Budget Day! There were no changes in relation to private pensions in Budget 2024, although we expect some small pension changes to be included in the Finance Bill 2023, which is due to be published at the end of October. In the meantime, one thing that remains steadfast is the “Pay and File” deadline. For those who want to reduce their income tax liability, pensions still certainly deliver a treat, without the trickery!
Who does the pay and file deadline apply to?
The deadline applies to those in the ‘self-assessment’ system:
- Self-employed individuals
- Proprietary directors
- Those in receipt of investment or rental income
PAYE Employees through their AVC’s (additional voluntary contributions)
For those who are self-employed
If you are self-employed, you must calculate your tax liability and make a payment by 15 November 2023 (for ROS users) in respect of your:
- Final Tax Assessment for 2022
- Preliminary Tax for 2023
You can reduce your 2022 Final Tax liability and your 2023 Preliminary Tax liability by making contributions to a Personal Pension Plan or to a PRSA by 15 November 2023 (for ROS users) and also by these respective dates electing to backdate the tax relief to 2022. Pension contributions are subject to the age-related limits shown below:
What tax relief is available on a pension contribution?
Tax relief is still 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. For example, 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. Let’s put it another way, if the €200 is invested in a pension, that’s a 66% return on the contribution.
The below example shows how a self – employed individual can reduce their 2022 Final Tax liability and 2023 Preliminary Tax liability by making a pension contribution:
For those who are Proprietary Directors
If you are a Proprietary Director (i.e. a director who owns or controls more than 15% of the shares in your company), you are obliged to file self-assessment tax returns by 15 November 2023 (for ROS users) in respect of the previous year, even if all of your income is taxed under the PAYE system. If your income includes nonPAYE income you must pay any balance of Income Tax, PRSI and USC outstanding from the previous year. You will also need to consider paying Preliminary Tax for the current year. You can reduce your 2022 total tax liability and you may even receive a refund cheque from the Revenue. This can be achieved by personally making a lump sum pension contribution by 15 November 2023 and also by electing to backdate the tax relief to 2022, subject to the age-related maximum contribution limits (as above).
The below example shows how a proprietary director can reduce their 2022 total tax liability and even receive a refund from the revenue. This can be achieved by personally making a lump sum pension contribution by 15 November 2023 (for ROS users) and also by this date electing to backdate the tax relief to 2022:
What type of pension plan might be applicable if you are a Proprietary Director
- If your company does not already contribute to an Occupational Pension arrangement on your behalf you can make contributions to a Personal Pension Plan or a PRSA in respect of your income from your company.
- If your company contributes to an occupational arrangement on your behalf you can make contributions to a group Additional Voluntary Contribution (AVC) arrangement or to a PRSA AVC plan in respect of your income from your company.
- If you have non PAYE relevant earnings you may be able to make contributions to a Personal Pension Plan or PRSA in respect of this income (subject to Revenue Rules in relation to dual income arising from concurrent employments, if any)
The pay and file deadline and those who are employees
Employees may be entitled to a refund of some of the Income Tax paid in 2022. The below example illustrates how an employee could be entitled to a refund of the Income tax paid in 2022 from making a pension contribution:
What type of pension plan may be applicable for employees?
- If you are an employee in non-pensionable employment, you can make contributions to a Personal Pension Plan or a PRSA.
- If you are an employee in pensionable employment, you can make contributions to a group Additional Voluntary Contribution (AVC) arrangement or to a PRSA AVC plan.
Revenue ‘My Account’ changes
One very noteworthy recent change to Revenue ‘My Account’/ROS means that those claiming tax relief on pension contributions are now required to upload a pension tax certificate to move through their online application. Where a tax certificate is not available clients can upload their own note. The following information must be included in the upload:
- Date of pension contribution payment
- Total amount paid
- Type of pension contract to which the contribution was paid
- The relevant policy/scheme number
- Name and address
- Confirmation that tax relief was not allowed on the contribution through net pay/ payroll
How can Cantor help?
As I often say, a pension is for life not just for the Pay and File Deadline! 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. Initiating the advice of a financial advisor is important so you can 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.