Feeling like you are far behind with your pension contributions? In this blog post, we will discuss a strategy that can allow you to quickly catchup if you have some savings you are willing to put away for your retirement.
It is not unusual to feel anxious about the size of your pension pot; the consistent message that financial advisors will commonly spout is that the earlier you start making pension contributions, the easier it will be to fund your retirement.
You may be behind some of your peers, but this isn’t something you should worry about. There are times in life when a pension won’t be top of your list of priorities, such as when you are saving for a deposit for your first home, or just building up an emergency fund.
How you can catchup on your pension if you are behind
Did you know that in certain cases you can backdate pension contributions to the previous tax year if you have not fully utilised your income relief limits?
If you made contributions to your pension in 2023 for example, these can still be backdated and deducted for income tax relief on your 2022 income. These contributions must have been made before the deadline for the 2022 income tax return which is 31 October 2023 ( Mid November if filing online).
If you made pension contributions after the income tax deadline, then these cannot be backdated to the prior tax year.
If you find yourself in a situation where you have not started your pension yet, this means in your first year your tax relief limits can be doubled by using the current and prior years tax relief.
Tax Relief Limits on Pension Contributions in Ireland
Unfortunately, you will there are limits to the amount of tax relief you can get on your pension contributions in Ireland (but the limits are generous thankfully). Here is a breakdown of the Income Relief Limit by age:
| Age attained during year | Income Relief Limit (%) |
|---|---|
| Under 30 | 15% |
| 30 to 39 | 20% |
| 40 to 49 | 25% |
| 50 to 54 | 30% |
| 55 to 59 | 35% |
| 60 and over | 40% |
For example, Mary earns €60k per annum and is aged 43, she can contribute up to €15k per annum and receive tax relief from PAYE at 40% as her income is well into the higher PAYE tax band. Therefore, a €15,000 contribution would only cost her €9,000.
The maximum net relevant earnings that can be taken into account for the purposes of the tax relief limits on RAC and PRSA contributions is €115,000.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.
