.png)
Welcome, fellow Financial Fitness Enthusiasts!
Today, we're embarking on a journey into the realm of Additional Voluntary Contributions (AVCs) for Irish Life pensions—an approach that can significantly enhance your financial future.
As an Irish taxpayer, your pension stands as the most tax-efficient investment at your disposal. Whether you prefer setting aside a bit of your income each month or infusing your pension with a larger sum at once, AVCs offer an outstanding opportunity to boost your retirement savings while benefiting from tax relief.
Here's the noteworthy part: depending on your marginal tax rate (20 or 40%), contributing €10,000 could only cost you €6,000 or €8,000 after tax savings. It's an effective way to grow your future nest egg with less impact on your current finances.
Your age plays a role in how much you can contribute as a percentage of your income, with allowances increasing as the years go by. For those of us in the 30-39 group, we can channel up to 20% of a gross annual income of €115,000 into our pensions, optimizing the tax benefits available. Below, you can find the detail of each age brackets & their percentage.
Finally, don't forget that the deadline to add money for your tax year Y is the 31st of October of Y+1. For example if you want to add money to your pension for 2024, you have until the 31st of October 2025 to do so.
Let's delve into how to add contributions to effectively enhance your financial landscape, making the most of your hard-earned money for the years ahead. We will go step by step asking ourselves the key questions to avoid making any mistakes.
The best way to assess this is to go to the Irish Life Pension Platform, and go under Once-off Payments. Then you click on "Next" under Previous Tax Year (YYYY). It will bring you on the page with your salary : just skip from now (click next). Then you have the page Additional Income for Period (Optional) : just skip (click next).
Finally you will get on the page "My Total Contribution for Period". This is what you are looking for.
The number here will give you the total amount Irish Life registered you have contribution in the tax year in question.
The key information in this step are as follow :
"I am XX years old, and in the year YYYY I have already contributed to ZZZZ €. "
Now you need to get to your annual gross salary. Usually it is at the top of your last payslip of the year (the closest to the 31st of December).
Now you have 2 main cases :
SO now what that tells you is how much you can still add to your pension at any point in time before the deadline. Take the number you just calculated, and substract what you already contributed from step 1.
So for example if you already contributed 6000 € in 2023 (from step 1), and can add up to 23 000€ in 2023 (from step 2), then you can still add 23 000 - 6000 = 17 000€ for the tax year 2023.
What it means from a tax benefits perspective is that you could add 17 000€ to your pension. Assuming you are a high tax payer (40%), it means you will pay 17 000€, but then Revenue will reimburse you 6800 € (40% of the 17 000€).
So it will only cost you 10 200€, but you will have an additional 17 000€ in your pension. This is the government incentive to have you add more to your pension.
Before we jump into the how, let's summarize what we need to get from this step :
It's very easy : go to the Irish Life Platform, and go through all the steps of the Once-off Payments, this time making sure that you fill all the information correctly (you have all the information to do so with the previous steps).
Click next until you get to the confirmation step, with the reference number.
All the instructions are on the confirmation step. Do not forget to add the reference number to your payment. I always tend to also send an e-mail to the contact e-mail for Irish Life happytohelp@irishlife.ie with that reference number and the amount, just to be on the safe side. You should also use this opportunity to explicitely request the Tax Certificate, key document to get the tax benefits.
After 3-5 days, Irish Life should come back to you with an AVC certificate. This is key as it will be used to declare your contribution to revenue.ie to get the tax back.
Now this is the important step to avail of the tax benefit.
On revenue.ie, go to the link "Review your tax YYYY-ZZZZ". It is not the link to "Manage your Tax XXXX" as this is for the current tax year. Unless you put AVCs for the current tax year of course.
Then you can click on "Amend" in the Income Tax Return area.
Then you will have to review all the information - this should not be too long as it's pre-populated.
Then when you get to the tax credit part, you can go under Your Job and then Additional Voluntary Contributions.
Fill the pop-up (you have all the information from the preceding steps). Note that if you are contributing to your employer's pension scheme, you need to select other. Otherwise, you can select PRSA contribution.
When you are asked for the "Net Relevant Earnings", it will depend on your situation- but if you have no other income than the one declared to revenue (usually the "gross income" mentioned just before this field) and you are a PAYE employee, then you can just copy paste the "Gross income" field into the "Net Relevant Earning field".
Go through the remaining steps, confirming your tax credits.
And voila! You are done, and will receive an e-mail of confirmation in your inbox.
After a few days/weeks, you should receive the tax refund on your account.
Congratulations, you did it!
You can pat yourself in the back for doing something great for your financial fitness !
Do not hesitate to share this article with anyone around you that could benefit from it. If you have any feedback or question, feel free to reach out through the contact form.
