Pension top ups and tax benefits explained

You have a pension! Congratulations, that’s half the battle. Although it may seem like you have everything sorted, it’s always a good time to start looking at ways to maximise the pay-off for all your hard work and savings.

The basic idea of saving into a pension is a simple one, but it’s important to also think about topping up your pension and upgrading with Zurich is a good place to start.

Making extra contributions comes with a number of benefits, but don’t worry if you don’t know what they are… that’s what we’re here for!

Pension upgrades

Making extra contributions into your pensions comes with a number of benefits. We caught up with Senior Financial Planner with Zurich, Marie Kirwan, who talked us through the overall impact it can have.

“Money paid into your pension qualifies for tax relief and as your pension is invested and growing over time any growth on your pension is also tax free and these combined makes your pension a very powerful means to reaching your retirement income goal. The more you put away while working, the more comfortable you will be when it comes to retirement.”   

Lump sum and pensions

It’s always a good time when you happen upon a lump sum of cash, a good thing to note is that if you do come into some extra money at any stage of your life, one of the best places to invest it is into your pension, as Marie explains.

“A lump sum payment into your pension is also known as a single premium pension. If you come into some extra money one of the best places to invest it is into your pension. If you are an employee and pay into a pension scheme and saved less than the annual threshold, the end of the financial year is a good time to make a lump sum pension contribution.”

Tax relief and pensions

Knowing whether or not you apply for tax relief can be tricky. In Ireland, when your income is over a certain level the government start to take tax from your earnings. If you put money into your pension it qualifies for tax relief. This means that some of the money that would have gone to the government as tax now goes into your pension. Marie explains that a pension is therefore a great way to reduce your tax liability and boost your retirement income:

“Tax relief on your pension is based on the rate of income tax that you pay, this will be 40% for a higher rate taxpayer or 20% for a standard rate taxpayer. For example, putting €200 into a regular savings policy will cost you €200 but putting the same amount into a pension will cost you €160 if you are a standard rate taxpayer or €120 if you are a higher rate taxpayer.”

It’s important to not forget about your pension, even if it’s already set up. Keeping on top of your pension is a crucial component to being able to live the way you want to when you retire. Let’s face it, we’ll have worked hard enough by then. 

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at 1st August 2024 and may change in the future. 

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

Sources:

₁Investment Excellence Award, Brokers Ireland, 2014, 2015, 2016, 2017, 2018, 2019, 2021, 2022, 2023. No awards held in 2020. Pension Provider Excellence Award, Brokers Ireland, 2023, 2022. Fund Management Company of the Year 2023 Award, Business and Finance Financial Services Awards. Life Assurance and Pensions of the Year, InBUSINESS Recognition Awards, 2024.

₂Zurich, 30th June 2024.

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