At this time of year, when tax returns are being filed and paid, many people’s focus (particularly those people who are well advised) turns to reducing their tax liability by way of an additional voluntary pension contribution, also referred to as an AVC.
The deadline for filing a tax return online and paying an AVC has been extended to 10th December 2020 this year due to the COVID-19 restrictions.
When a public servant is looking to make an AVC to obtain tax relief, several factors must be taken into account. As with both public & private sector workers, the earnings cap of €115,000 applies as an upper limit on the earnings that tax relief can be given for, in respect of a pension contribution. There are also age-related percentage limits as follows:
|60 or over||40%|
The maximum tax relief may not exceed the individuals relevant age-related threshold and their earnings (or overall maximum) in the year of assessment.
When a public servant is looking to make an AVC in respect of the previous years tax liability, the level of contributions made by them in the given year must be taken into account. The standard contribution rate across the public service is 6.5% of pensionable remuneration, made up of 5% for the main pension scheme and 1.5% for spouses and children’s scheme (this is for Class D PRSI). However, this can and does vary depending on when the individual joined the public service and the specific sector they are employed in.
It should be noted that the Additional Superannuation Contribution (ASC), formerly known as the Pension Related Deduction (PRD) does not form part of these calculations and can be ignored for the purposes of calculating an AVC amount.
Also, where there are contributions being made towards the purchase of notional service, or any pre-existing AVC arrangements, then these should be taken into account in the calculations.
A worked example would be as follows:
Client – Paul
Age – 52
Gross earnings for 2019 – €50,000
No pre-existing AVCs or contributions to purchase notional service
|Maximum allowable contribution based on age – €50,000 * 30%||€15,000|
|Less main scheme contribution (6.5% of salary as above)||€3,250|
|Less contributions for purchase of notional service||€0|
|Less pre-existing AVC arrangements||€0|
|Remaining scope for AVC||€11,750|
It is still possible for you to make an AVC in respect of your 2019 tax return, even if you have already filed your tax return. The AVC can be made and the tax return amended, as long as this is done in advance of the deadline of 10th December 2020.
Also, if you have both public and private income, then you need to make AVCs in respect of the public income prior to making personal contributions, with the combined total within the age-related threshold as outlined above.
If you would like us to assist you in a calculation that is specific to your circumstances, whether you are a public servant or in the private sector, we would be delighted to meet with you and discuss your current arrangements and offer an opinion on them, or work with you to recommend the most appropriate course of action for you.
Please feel free to reach out to me at email@example.com to start the conversation.