An individual who contributes to a pension scheme on or before 31 October 2010 may obtain relief for this contribution for the 2009 tax year. The deadline is extended to 16 November for Revenue On-Line Service (ROS) users. With this deadline looming, it is important to consider recent changes to ensure that tax relief is available for such contributions.  

The maximum tax relievable pension contribution depends on an individual’s age and level of pensionable income. The age based allowance ranges from 15% to 40% of income.

There is also a cap on the amount of an individual’s total income which can be taken into account in calculating the tax relief available. For the 2009 tax year, the cap was €150,000 (reduced from €275,238 in 2008).  Therefore, for 2009, a 60 year old individual (who, due to his/her age, is entitled to the 40% age-based allowance) can only get tax relief on 40% of the higher of his/her actual income and the capped amount of €150,000.  This equates to a maximum tax relievable contribution of €60,000 if he/she earns €150,000 or greater.  

Special care should be taken in applying the limits in the case of an individual who has both employment and self-employed income.  Revenue recently clarified how tax relief will be granted in such cases. If an individual makes any contribution to an occupational pension scheme relating to the employment, however small, Revenue state that the total income from that employment is counted for the purposes of the €150,000 limit. For example, where the employment income is €100,000 and the self-employed income is €120,000 and the individual is required to contribute to an occupational scheme, the individual can only get tax relief for a pension contribution relating to his self-employed income on the relevant (age related) percentage of a maximum of €50,000.  Where the employment source income exceeds €150,000, a contribution in relation to the self-employed income source will not get tax relief.  It is important, therefore, to ensure that any pension contributions are made to the “right” scheme.

It is noteworthy that the above caps on tax relievable contributions do not apply to contributions made by the employer into an occupational scheme on behalf of the employee, although there are other limits based on the salary and period of service of the employee.  

This article has been authored by Niamh Keogh.