Do you know how tax efficient pensions are?
Rob O’Neill, QFA
A staggering seven out of ten adults, don’t realise how tax efficient pensions can be and are missing out on a potential tax break, of up to €20,000 per year. A recent survey carried out by Research Plus Ltd and commissioned by Standard Life in late September 2014, asked 1,000 adults if they thought pensions are tax efficient, 28% said no, while a further 42% said they didn’t know.
Almost half (47%) of those with a pension agreed that pensions were tax efficient while 51% of those who didn’t have a pension thought they were not tax efficient. This survey shows that a large portion of the Irish public are uninformed about the benefits of pensions, not just for retirement, but how a pension can help reduce their annual tax bill.
In 2010 and 2011, the Department of Finance had indicated strongly that they may halve the income tax relief on pension contributions. It can be argued that these tactics, lead to many Irish people believing that this tax relief was cut, when in reality it remained exactly the same. With historically low interest rates and high DIRT levels across the majority of deposit accounts, pensions remain the most tax efficient way to save for your future.
How does tax relief work?
Standard rate taxpayers receive a 20% tax break while those earning €32,800 or more per annum are entitled to 41% tax relief.
Higher rate taxpayer
To save €100 into your pension pot, you put in €59 and the government tops it up by €41. In other words saving €100 has cost you just €59.
Standard rate taxpayer
A younger saver, early in their career may want to save €100 per month, however they only have to pay €80 and the government will top it up by €20.
To find out more about how you can reduce a hefty tax bill and put away some money for your retirement, talk to Rob, our pensions expert today by calling 01 822 8022 or by emailing firstname.lastname@example.org.
To learn more about how pensions can help you save for retirement and reduce your tax bill, check out the MC Financial comprehensive pension page.