Contributions
Revenue Pensions
3.1 Ordinary contributions: relief from Income Tax
Contributions to an exempt approved scheme (as defined in section 774 Taxes Consolidation Act 1997 (TCA)) are allowable as an expense in assessing the member’s liability to income tax under Schedule E. As with other pension products, tax relief for contributions to an exempt approved scheme is subject to two main limitations.
The first, set out in sections 774 and 776 Taxes Consolidation Act 1997 (TCA), is an age- related percentage limit of an individual’s earnings in respect of the office or employment for the year for which the contributions are paid. The maximum amount of pension contributions in respect of which an individual may claim tax relief may not exceed the relevant age-related percentage of the individual’s earnings in any year of assessment.
The age-related percentage limits are:
Under 30 15%
30-39 20%
40-49 25%
50-54 30%
55-59 35%
60 or over 40%
A 30% limit applies below the age of 50 years to certain categories of professional sportspersons.1
Secondly, section 790A TCA places an overall upper limit on the amount of earnings that may be taken into account for tax relief purposes. The earnings limit is set at €115,000 for 2011 and subsequent years. This limit applies whether an individual is contributing to one or more than one pension product.
Where an individual is contributing solely to an exempt approved scheme, the maximum amount of tax relievable contributions is the relevant age-related percentage of the lower of:
the individual’s earnings in respect of the office or employment, and
the earnings limit.
1 Athletes, badminton players, boxers, cricketers, cyclists, footballers, golfers, jockeys, motor racing drivers, rugby players, squash players, swimmers and tennis players – see section 787(8A)-(8C) and schedule 23A TCA.
Where an individual has two or more sources of income (for example, earnings from employment and profits from self-employment) and is making pension contributions to an occupational pension scheme and to a retirement Annuity Contract (RAC), a Personal Retirement Savings Account (PRSA) and/or a Pan-European Pension Product (PEPP) the single aggregate earnings limit of €115,000 applies in determining the amount of tax relievable contributions.2
For years of assessment prior to 2011, the earnings limits were:
2003 to 2006: €254,000
2007: €262,382
2008: €275,239
2009 and 2010: €150,0003
Contributions are allowable in the year of assessment in which they are paid (but see
paragraph 3.4).
3.2 Ordinary contributions: no relief from PRSI or USC
There is no relief from Pay Related Social Insurance (PRSI) or the Universal Social Charge (USC) for contributions made to occupational pension schemes.
3.3 Net pay arrangement
Tax relief for ordinary annual contributions, including regular additional voluntary contributions, is granted by operation of the net pay arrangement. The relief is provided
2 Please refer to Chapter 26 for detailed information and examples on how the age-related and earnings limits are applied in respect of contributions to one or more pension products.
3 For the year of assessment 2010, the earnings limit is deemed to be €115,000 for determining how much of a qualifying contribution paid by an individual in the year of assessment 2011 is to be treated as paid in the year of assessment 2010. For example:
A, who is aged 27 had net relevant earnings of €160,000 for 2010. He paid pension contributions of €20,000 in 2010 and €2,000 in 2011 and wanted to claim relief in respect of both for 2010.
Full relief was due for the contributions paid in 2010 as they were less than the maximum allowable tax relievable amount of €22,500 for payments made in that year (i15% of €150,000). However as regards the
€2,000 paid in 2011, the maximum tax relievable amount allowable for 2010 for the purposes of determining how much relief could be claimed for the amount paid in 2011 was €17,250 (15% of €115,000).
As the amount of the contributions actually paid in 2010 already exceeded €17,250, no additional relief could be claimed for 2010 in respect of the amount paid in 2011. The relief due for 2010 was €20,000.
through payroll deductions, which may reduce the amount of income tax a member will pay. The amount of income tax relief a member will receive will depend on their gross pay, the rate of tax paid, the amount contributed by the member to the scheme, personal tax credits available and the limits on tax relief on contributions outlined in paragraph 3.1 above.
The net pay arrangement can only be operated by an employer following application to Large Cases – High Wealth Individuals Division, Pensions Branch) for scheme approval. Employers should advise Revenue when operation of the arrangement commences.
Scheme members may also get relief through the net pay arrangement for additional voluntary contributions to the scheme.
Example
John is a member of his occupational pension scheme and is aged 42 in 2023. He earns
€50,000 per year.
The maximum annual contribution available to John for tax relief purposes is:
€50,000 x 25% = €12,500
[25% is the maximum percentage relief available for individuals aged between 40 and 49 years.]
John’s contribution to the scheme in 2023 through net pay arrangement is 5% of his basic salary:
5% x basic salary = €2,500
John has not exceeded his maximum allowable contributions for tax relief purposes.
Therefore, John could contribute up to a further €10,000 (maximum relief of €12,500 minus ordinary contributions of €2,500) in Additional Voluntary Contributions (AVCs) and receive this additional tax relief against his renumeration through payroll in 2023.
3.4 Relief for special contributions
Relief for special contributions (or for a contribution not made under the net pay arrangement as in paragraph 3.3) is given by way of adjustment to the employee’s tax credit certificate. If aggregate contributions exceed the annual relief limit, relief will be given on a spread forward basis.
If a contribution is paid after the end of the year, but before 31 October of the following year, relief may be claimed for the previous year provided an election to do so is made by the individual on or before 31 October of the following year. As the payment of a qualifying contribution is a pre-condition to the availability of relief, an election cannot be made in advance of such a payment.
Taxpayers who file and pay online via the Revenue Online Service (ROS) or myAccount may avail of the extended return filing and payment date to make an election and pay a contribution.
The date for making an election in respect of contributions paid in the year of retirement may be extended to 31 December of that year in certain circumstances (see Appendix III of the Pensions Manual).
Tax relief is not transferable between spouses or civil partners.
Sections 774 and 776 TCA provide that relief may be allocated to earlier years in certain circumstances. The circumstances are:
(a) A scheme that requires benefits for widows, widowers, surviving civil partners, children or dependants to be paid for by deduction from the employee’s lump sum benefit.
(b) A repayment by the employee to the scheme of contributions which were previously refunded to the employee.
(c) Where the employee opted prior to 6 February 2003 to purchase additional years of service.
Section 776 also provides that:
• arrears of spouses’ and children’s contributions paid by retirees under the Incentivised Scheme of Early Retirement (Department of Finance Circular 12/09) from the 90% balance of their retirement lump sum payable at their preserved pension age may be allocated to earlier years for tax relief purposes (section 776(2)(ba) TCA), and
• contributions, which are not ordinary annual contributions, and which are paid or borne in the period 1 July 2008 to 31 December 2018 by individuals who were employed by the National University of Ireland, Galway (NUIG) under a contract governed by the Protection of Employees (Fixed-Term Work) Act 2003 at any time during the period beginning on 14 July 2003 and ending on 30 June 2008, in respect of a tax year, or part of a tax year, falling within the second mentioned period, other than contributions which are treated as ordinary annual contributions –
1. in accordance with section 776(2)(b)(i) or (ii)(II) TCA, or
2. following an election under section 776(3) TCA,
are, to the extent that they have not otherwise been relieved from tax for any year, treated as having been paid in the year, or years, in respect of which they are paid.
In applying the time limits in respect of repayment claims in section 865(4) TCA, non- ordinary contributions, which were made before 1 January 2015 by the fixed-term NUIG employees referred to above, are treated as having been made in 2014.
A claim for tax relief must be made within four years of the end of the year of assessment in which a contribution is made or is treated as having been made.
3.5 Repayment of scheme benefits
An employee may be re-admitted to a scheme and required to repay a benefit, including a refund of contributions, previously made. Normally relief is due only on the interest element of the amount repayable to the scheme’s administrator. Relief will be given by either of the methods described in paragraphs 3.3 (the net pay arrangement) or 3.4 (relief for special contributions) depending on how the interest is repaid, either by single payment or deduction from salary.
3.6 Periods of temporary absence
During a period of temporary absence, a member’s contributions may be either suspended or continued.
In certain situations, a non-Irish resident employee may be permitted to remain in an Irish occupational pension scheme while working overseas (see paragraphs 17.7 and 17.8 of Chapter 17).
An employee who is seconded or transferred by their employer to work overseas and who returns to live and work in Ireland for the same employer may claim tax relief in respect of contributions he or she makes to the employer’s pension scheme in respect of the year in which he or she returns and any subsequent years in the normal manner.
Where an employee is not assessable to tax in Ireland in respect of their salary for the period of overseas employment, tax relief is not due under the TCA for contributions he or she made to the scheme in respect of that period. While a practice of taking credit for such contributions was operated in certain cases, there is no legislative basis for this. With effect from 6 June 2017, Revenue will not allow any such unrelieved pension contributions to be carried forward to the year in which an employee returns to Ireland. As such, they cannot be claimed in that year or in any subsequent year.
3.7 Limits on contributions
Employee contributions must be restricted, if necessary, to ensure that the member’s aggregate benefits are within approvable limits and that the employer makes a meaningful contribution to the scheme (see Chapter 4.1). A funding review and maximum benefits test must take place before any Additional Voluntary Contribution (AVC – see definition in Chapter 23.2) is paid. It is the responsibility of the scheme trustees to ensure that excessive employee contributions are not made. The purpose of any AVC should be made clear to the
employee. Please see Chapter 5.7 for the standard methodology for funding and benefit calculations.
3.8 Salary sacrifice
Any arrangement under which an employee waives an entitlement to remuneration or accepts a reduction in remuneration, in return for a corresponding payment by the employer into a pension scheme, is considered to be an application of the income earned by the employee rather than an expense incurred by the employer. Such arrangements are subject to the provisions of section 118B TCA, which deals with Revenue approved salary sacrifice arrangements.
3.9 Contributions after normal retirement age
A member of a pension scheme who remains in service after normal retirement age (usually between 60 and 70 years) may start or continue paying contributions to fund any shortfall of maximum benefits (See Chapter 8.8).
3.10 Approval of pension schemes not dependent on employee contributions
There is no requirement in either section 772 or section 774 TCA that members of an occupational pension scheme must contribute to the scheme, for the scheme to obtain approval for tax purposes.
4.1 General
One of the conditions for approval of a pension scheme is that the employer must contribute to it (section 772(2)(d) Taxes Consolidation Act 1997 (TCA)). Subject to the considerations mentioned in Chapter 5 and any funding requirements imposed by the Pensions Acts (as regulated by the Pensions Authority) the timing of the contributions is a matter for the employer.
While Revenue will not insist that there be a stated minimum level of employer contributions, such contributions must be “meaningful” in the context of the establishment of, operation of, and the provision of benefits under, a scheme. For instance, where an employer bears the cost of establishment and ongoing operation of the scheme, in addition to meeting the costs of the provision of death in service benefits under the scheme, such overall contributions would generally be considered to be meaningful.
Employer contributions which amount to not less than 10% of the total ordinary annual contributions to a scheme (exclusive of employee voluntary contributions) would always be considered to be meaningful.
It will always be open for employers and their advisers to approach Revenue to discuss individual schemes. Such queries can be addressed using the secure “MyEnquiries” service available in myAccount or ROS.
4.2 Ordinary annual contributions
Ordinary annual contributions paid by an employer to an exempt approved scheme are allowed as a deduction for tax purposes. Section 774(6) TCA provides that the amount of the contributions shall be allowed to be deducted as an expense incurred in the year in which the sum is paid. No deduction can be given for any provision for an amount due but not paid. The amount deductible must not exceed the amount contributed by the employer to the scheme in respect of employees engaged in a trade or undertaking, the profits of which are assessable to Irish tax on the employer. Where the employer carries on two or more separate businesses, each with its own employees, the employer’s contributions in respect of each group of employees can be allowed only against the profits of the business in which the group is employed. Please, however, refer to paragraph 4.9 which considers the position where an employer makes pension contributions in respect of the employees of another employer in corporate reorganisation cases.
Please see Chapter 5.7 for the standard methodology for funding and benefit calculations.
4.3 Special Contributions
Where a contribution is not an ordinary annual contribution but a special contribution (for example, to provide benefits for “back service”, to augment benefits already secured or to make up an actuarial deficiency in the fund) Revenue may require that the allowance be spread forward over a period of years.
This will not normally be required where the aggregate of all special contributions made by an employer to exempt approved schemes in the same chargeable period does not exceed the greater of the employer’s corresponding aggregate ordinary annual contributions or
€6,350.
The period of the spread is usually determined by dividing the aggregate special contribution by the aggregate ordinary annual contribution, subject to a maximum of five years and to a minimum divisor of €6,350.
In the following examples, OAC stands for “ordinary annual contribution” and SC stands for “special contribution”.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Max. spread €2,000 €40,000 20 * 1st year €8,000
2nd year €8,000 3rd year €8,000 4th year €8,000 5th year €8,000
* The minimum divisor is €6,350, which would give a spread of 6.3 years (€40,000 / €6,350). However, the maximum spread is five years.
The divisor to determine the spread period for a special contribution paid during a short chargeable period will normally be equal to
• the greater of the actual ordinary annual contribution paid during the short period in question or
• €6,350.
If the quotient exceeds 1 but does not exceed 1.5, the special contribution will be allowed over two years.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Rounded up €8,000 €10,000 1.25 1st year €8,000
2nd year €2,000
In all other cases a fraction of a year will be rounded up or down to the nearest full year.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Rounded down
€8,000
€18,000
2.25
1st year €9,000
2nd year €9,000
If a fraction is rounded up, the allowance in each of the relevant years except the last will be equal to the greater of
• the employer’s aggregate ordinary annual contribution at the time the special contribution is made or
• €6,350,
the balance being allowed in the final year.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Rounded up €8,000 €22,000 2.75 1st year €8,000
2nd year €8,000 3rd year €6,000
Once determined, the period of spread will not be varied because of subsequent fluctuations in the ordinary annual contribution. Re-computation will be necessary if a further special contribution is paid before the first one has been wholly allowed or if the employer should cease to trade.
4.4 Contributions under one-person arrangements
Where contributions under one-person arrangements and insured schemes using earmarked policies are paid over a short period to secure the benefits of an individual member, Revenue will accept that no spreading is required even if the benefits are primarily for past service, provided that:
a) payments are uniformly spread over at least three policy years, and
b) payments extend up to normal retirement date, meaning that the final payment is made on the policy anniversary immediately preceding normal retirement date or, depending on the terms of the policy, on some other appropriate date not more than two years before normal retirement date.
4.5 Expenditure allowed in the year of payment
The following types of expenditure will normally be allowed as an expense in the year in which they are paid, without any necessity to consider spreading:
a) legal and other expenses on establishment of the scheme.
b) special contributions payable by instalments over a period of five or more years, or paid annually on a specified basis where, although the amounts may be liable to fluctuate, substantial variations in successive years are not expected to occur.
c) special contributions that are certified as made solely to finance cost of living pension increases for existing pensioners, or any part which is so certified.
4.6 Certain schemes deemed to be “exempt approved”
The outright purchase of an annuity (“Hancock Annuity”) for an employee at the time of, or after, his or her retirement, or a scheme set up not long before retirement by the payment of a single premium will constitute an exempt approved scheme, if it is approved and if the annuity is the subject of a trust. If there is no trust, a direction that the scheme is exempt approved may be made but, save in exceptional circumstances, the direction will not be made against the wishes of the employer. If the transaction is exempt approved (whether because it is the subject of a trust or by virtue of direction) the purchase price or single premium will then be an allowable contribution, but not an ordinary annual contribution, and will be treated in the same way as a special contribution (see paragraph 4.3).
4.7 Contribution to an approved scheme which is not “exempt approved”
Any relief in respect of contributions to an approved scheme which is not “exempt approved” will generally be under the ordinary rules of Schedule D and governed entirely by the provisions of section 81(2) TCA. If the members are related to the employer or, where the employer is a company, to persons having any substantial beneficial interest in its share capital, the position will be examined closely, because to qualify for relief, the payment must be made wholly and exclusively for the purposes of the employer’s trade. A contribution of a capital nature – that is, one “bringing into existence an asset or an advantage for the enduring benefit of a trade” – is not an allowable deduction.
Contributions must be paid separately or clearly separated from the employer’s other assets. There will then normally be no difficulty about the allowance of ordinary annual contributions paid on a regular basis. Other contributions – for example, lump sum payments securing benefits for back service – may not qualify for relief and the matter will be one for consideration by the Revenue officer dealing with the employer’s accounts.
A Hancock type annuity qualifying for simple approval may provide for the purchase of a commutable annuity up to the normal limits on the same terms as an exempt approved scheme. The sole consideration in opting for simple or exempt approval is the matter of claiming relief in the year of payment under the ordinary rules of Schedule D or claiming relief under section 774 TCA and thereby perhaps involving spread forward relief. Lump sums may be provided only by way of commutable annuity.
Any arrangement, “Hancock” or “exempt approved”, set up after the point of retirement may only provide non-commutable benefits with any lump sum element of the package being treated as a payment on termination of service subject to tax under section 123 TCA.
The point of retirement covers the period from the time that definite intention to retire is expressed up to the point of retirement, during which time the employer makes provision for the payment of benefits and provision for the cost of providing such benefit.
4.8 Refund of employer contributions
A refund of premiums or contributions paid in error may be made without approval by Revenue, provided that:
a) The premiums were paid in error because, for example, a direct debit mandate was not altered or cancelled immediately after a member left pensionable service or retired, or after a scheme was discontinued, and
b) The period over which the overpayment occurred was less than one year, and
c) The amount involved is less than €5,000.
4.9 Contributions in corporate groups and following corporate reorganisations, etc.
As noted in paragraph 4.2, section 774(6) TCA provides tax relief for contributions made by an employer under an occupational pension scheme which is established in respect of employees of that employer.
There may, however, be cases where a company makes contributions to an employee pension scheme:
• in respect of individuals who are not employees of the company when the contributions are made, or
• which is operated by another company, where the scheme members are employees of the contributor company.
Finance Act 2019 amended section 774(6) TCA to allow tax relief for relief for pension contributions made by a “relevant contributor”, which means a company which contributes to occupational pension schemes set up for employees of another company in certain defined circumstances, including in corporate group structures, a merger, an amalgamation, a reconstruction, a merger, a division and a joint venture.
Finance Act 2021 further amended section 774(6) TCA to allow a deduction for such contributions where scheme members are current or former employees not just of a company which is party to the agreement but also current and former employees of a company for the benefit of whose employees the contributions are paid under the terms of that agreement.
To qualify for relief:
• the contributions must be made on foot of a legally binding agreement between two or more companies (one of which is the “relevant contributor”) in a group or under a scheme of reconstruction, a merger, a division or a joint venture;
• the scheme members must be current or former employees of one of the parties to the agreement or of a company for the benefit of whose employees the contributions are paid under the terms of that agreement; and
• the contributions would be deductible under section 774(6) TCA if the company making the contribution was the employer of the scheme members for whom the contributions are paid.
26.1 Introduction
Section 790A Taxes Consolidation Act 1997 (TCA) provides that an aggregate earnings limit applies for the purposes of giving income tax relief to an individual on contributions made to certain pension products1. This limit is currently €115,000.
This chapter illustrates the operation of the earnings limit where an individual has both earnings from employment and income from self-employment and makes contributions to both an occupational pension scheme/statutory scheme and a personal pension plan2. It also illustrates the operation of the earnings limit for doctors with GMS3 income and income from private practice where they make contributions to both the GMS Superannuation Plan/Additional Voluntary Contributions (AVCs) and to personal pension plans. The topics covered in this chapter are:
• Tax relief for pension contributions
• Contributions to a single pension product
• Contributions to more than one pension product
• Application of the earnings limits in the case of doctors with GMS and private practice income.
26.2 Tax relief for pension contributions
Tax relief for pension contributions by an individual is subject to two main limits.
The first is an age-related percentage limit of an individual’s remuneration/net relevant earnings (section 774(7)(c) TCA for occupational pension schemes with similar provisions in section 787 for RACs, section 787E for PRSAs and section 787Z for Pan-European Pension Products (PEPPs)). The maximum pension contribution in respect of which an individual may claim tax relief may not exceed the relevant age- related percentage of the individual’s remuneration/net relevant earnings in any year.
1 Occupational and statutory pension schemes, Retirement Annuity Contracts, PRSAs and qualifying overseas pension plans
2 The reference to “personal pension plan” in this chapter can apply to a Retirement Annuity Contract (RAC) and/or a Personal Retirement Savings Account (PRSA) and/or a Pan European Personal Pension Product (PEPP).
3 Now called Primary Care Re-imbursement Service (For ease of reference GMS is used in this chapter. For further information please refer to Appendix IV.)
The age-related percentage limits are:
Age Limits
Up to 30 years 15% of remuneration/net relevant earnings
30 – 39 years 20%
40 – 49 years 25%
50 – 54 years 30%
55 – 59 years 35%
60 years and over 40%
In addition, section 790A TCA places an overall upper limit on the amount of remuneration/net relevant earnings that may be taken into account for tax relief purposes. The earnings limit is €115,000 since 20114. This limit applies whether an individual is contributing to a single pension product or to more than one pension product.
In addition, section 790A provides that, for the purposes of giving tax relief to an individual on contributions made to a retirement benefits scheme and to a personal pension plan, etc., the aggregate of the individual’s remuneration, within the meaning of Chapter 1, and net relevant earnings within the meaning of Chapter 2 (RACs), Chapter 2A (PRSAs) and Chapter 2D (PEPPs) of Part 30 TCA shall not exceed the earnings limit. Therefore, where an individual has both remuneration from employment and net relevant earnings in respect of self-employment, the aggregate of the remuneration and net relevant earnings that can be “pensioned” for tax relief purposes cannot exceed the earnings limit.
Section 790A requires pensionable remuneration to be considered first in determining the overall amount of tax relievable contributions that can be made in any year as between occupational pensions (including AVCs) and personal pension plans.
If the pensionable remuneration from an office or employment in a year is equal to or exceeds the limit, there is no scope for further tax relief on contributions to a personal pension plan for that year.
4 The earnings limit was €254,000 in 2006, €262,382 in 2007, €275,239 in 2008 and €150,000 in 2009 and 2010. However, for 2010 the limit was deemed to be €115,000 for the purposes of determining how much of a pension contribution paid by an individual in 2011 could be treated as paid in 2010, where the individual elected under existing rules to have it so treated.
26.3 Contributions to a single pension product
Where an individual is contributing to a single pension product, the maximum tax relievable pension contribution is the relevant age-related percentage of the lower of:
the individual’s remuneration/net relevant earnings and
the earnings limit.
Example 1
An individual aged 50 with earnings of €200,000 in 2023 and making contributions to an occupational pension scheme may claim tax relief on the lower of the actual contributions paid and 30% of the earnings limit of €115,000 (€34,500).
If the individual is making contributions of 25% of salary (in this case, €50,000) tax relief would be limited to contributions of €34,500 (the lower of €50,000 – the actual contribution made – and €34,500 – 30% of €115,000). If the individual is making contributions of 17% of salary (€34,000) they could claim tax relief on the full amount, as this is lower than 30% of €115,000.
Example 2
An individual aged 40 with self-employed income (net relevant earnings) of €100,000 in 2023 and paying premiums to a personal pension plan may claim tax relief on the lower of:
the actual premiums/contributions paid and
25% of €100,000 (= €25,000)
If the individual is paying premiums/contributions of €30,000, the amount on which tax relief could be claimed would be limited to €25,000. If the premiums/ contributions paid were €25,000 or less, relief could be claimed on the full amount.
26.4 Contributions to more than one pension product
Where an individual has two sources of income (for example, earnings from employment and profits from self-employment) and is making pension contributions to an occupational pension scheme and to a personal pension plan, a single aggregate earnings limit of €115,000 applies in determining the amount of tax relievable contributions.
The following examples illustrate the operation of the earnings limit in such situations.
Example 3
Morgan has earnings from employment of €100,000 in 2023. He also has self- employed income of €100,000. He is aged 28 and is required to make a contribution of 10% of salary (that is, €10,000) to an occupational pension scheme established by his employer.
As Morgan is aged under 30 years, the maximum allowable tax relievable contribution he can make in respect of his employment earnings is 15% of his salary, which is €15,000.
What is Morgan’s scope for making further tax relievable pension contributions?
For his employment income, he could check with the scheme administrator or pension advisor to see if he has scope to secure extra benefits through additional voluntary contributions (AVCs). If such scope exists, he could make tax relievable AVCs of up to an additional 5% of his employment earnings (up to €5,000).
The pension contributions Morgan is making in respect of his employment earnings of €100,000 counts towards the aggregate earnings limit of €115,000, which leaves a balance of €15,000 of the limit.
Morgan’s capacity to make tax relievable contributions to a personal pension plan in respect of his self-employed earnings is restricted to a maximum of 15% of €15,000 (i.e. €2,250).
This is the position irrespective of whether Morgan decides to make an AVC.
Example 4
Sidney, aged 51, has earnings from an employment of €180,000 in 2022. He also has self-employed income of €100,000.
Sidney makes the following pension contributions:
• 10% of salary (€18,000) which he is required to make to an occupational pension scheme established by their employer, and
• 15% of self-employed earnings (€15,000) to a PRSA.
Because Sidney is aged between 50 and 55 years in 2022, the maximum pension contributions to the occupational pension scheme on which he is entitled to claim tax relief for 2022 is the lower of:
• His actual contributions (€18,000) and
• 30% of the earnings limit of €115,000 (€34,500).
As Sidney’s contributions are €18,000 he can claim relief on that amount.
However, no tax relief is due in 2022 for Sidney’s contributions to the PRSA as he has used up his aggregate earnings limit in contributing to his occupational pension scheme.
As in Example 3, if Sidney has scope to make AVCs, he could increase the amount of tax relievable contributions on their earnings from employment by up to €16,500:
Maximum tax relievable contribution permissible (€115,000 x 30%)
€34,500
Less contribution made to the occupational pension scheme (€18,000) Maximum potential additional tax relievable contributions €16,500
26.5 Contributions to the General Medical Services (GMS) plan
Under section 773 TCA the superannuation arrangements for doctors under the GMS5 Scheme are approved by Revenue, for the purposes of Chapter 1 of Part 30 TCA, as if the GMS Plan were a retirement benefits scheme for employees. Tax relief for contributions made by doctors to the plan is therefore given under the provisions of Chapter 1.
Section 773(3) TCA deems GMS income to be “remuneration from … an office or employment” and specifically excludes that income from being taken into account in the calculation of net relevant earnings for the purposes of any claim to relief in respect of premiums paid towards a personal pension plan.
Since 2001, AVCs may be made up to the relevant age-related percentage of a doctor’s net GMS remuneration,6 subject to the earnings limit, less the sum paid by way of the 5% contribution to the main GMS plan.
Since section 773 treats a doctor’s GMS income as “remuneration from an office or employment”, the operation of the aggregate earnings limit in section 790A TCA (see paragraph 26.2 above) also applies to doctors with GMS and private practice income in the same way. That is, the GMS income and GMS superannuation plan contributions must be considered first in determining the overall amount of tax relievable contributions that can be made by a doctor in any year as between occupational pensions (including AVCs) and personal pension plans.
5 See footnote 3 above.
6 “Net GMS remuneration” is defined as income derived from the GMS Scheme contract less any expenses set against that income for the purposes of assessing the doctor’s liability to tax. It was introduced in 2001 in the context of the extension of AVCs to the GMS Plan. It is determined by deducting net relevant earnings in respect of private practice income from the doctor’s overall net income (that is, gross income less expenses and capital allowances).
Therefore, pensionable GMS income (net GMS remuneration) makes up the first part of the aggregate earnings limit of €115,000 and net relevant earnings in respect of private practice income will be zero where the GMS pensionable income is €115,000 or more.
The following examples illustrate the operation of the aggregate earnings limit in such circumstances.
Example 5
Kim is a GP aged 56. She received net GMS remuneration in 2022 of €75,000, of which capitation income is €60,000, and she has net relevant earnings of €100,000 from her private practice.
She is contractually required to pay contributions equalling 5% of her GMS capitation income, which equals €3,000 (€60,000 x 5%).
Kim paid a further €4,500 in AVCs from her GMS earnings, so she has made pension contributions of €7,500 in respect of that income.
She has also paid premiums of €4,800 to a personal pension plan in respect of her private practice earnings.
Kim’s pensionable remuneration (the GMS income) must be considered first. Kim’s age-related percentage limit is 35% (for individuals aged 55 to 59 years). Since her net GMS remuneration is €75,000, her maximum tax relievable contributions for her GMS income is €26,250 (€75,000 x 35%).
Kim’s current total contribution from her GMS remuneration is €7,500, leaving a balance of €18,750 (€26,250 minus €7,500) of tax relievable contributions from her income.
She therefore has scope to make a “last minute” AVC of up to €18,750 under the provisions of section 774(8) TCA, before the 2022 return filing date (31 October 2023, or later if filed through ROS) and elect to claim the relief on the contribution in 2022.
The net GMS remuneration of €75,000 counts towards the €115,000 earnings limit, so she can make tax relievable contributions in respect of a personal pension plan to 35% of €40,000 (€115,000 – €75,000), which equals €14,000. As noted, she has already made regular RAC premiums totalling €4,800 in 2022. On that basis, under section 787(7) TCA, they can make a further tax relievable contribution of up to
€9,200 towards a personal pension plan before the return filing date and elect to claim the relief in respect of the contribution in 2022.
Example 6
Jean is a GP aged 43. She is in receipt of net GMS remuneration in 2023 of €160,000 of which capitation income is €130,000, and she has net relevant earnings of
€100,000 from her private practice.
As a member of the GMS Superannuation Plan, Jean made a contribution of €6,500 (5% of the capitation income) to the plan in 2023. In addition, during 2023 Jean paid
€6,000 to a PRSA in respect of her private practice income. Before completing her 2023 tax return, Jean wants to establish what relief she can claim on the contributions already made and whether she can make additional tax relieved contributions.
The potential maximum contributions in respect of which Jean can claim tax relief in 2023 is €28,750 – the earnings limit of €115,000 multiplied by the relevant age- related percentage limit of 25% for individuals aged 40 to 49 years.
As in Example 5, Jean’s pensionable GMS income must be considered first. In this case, as her net GMS remuneration exceeds the earnings limit of €115,000, she has no scope to claim relief for her PRSA contributions in 2023.
Jean has already made a contribution of €6,500 to the GMS Plan. Assuming she has capacity to do so (having regard to overall benefit restrictions) Jean has scope to make a special “last minute” AVC of up to €22,250 under the provisions of section 774(8) TCA, before the 2023 return filing date and elect to claim the relief on the contribution in 2023 so as to maximise her relief.
Jean’s PRSA contributions cannot be relieved in 2023 and must be carried forward for relief in future years. This is the position irrespective of whether Jean decides to make an AVC.