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An anomaly in the pension rules favouring very small contributions to PRSAs Thumbnail

An anomaly in the pension rules favouring very small contributions to PRSAs

Most of us will be familiar with a table like this which sets out the percentage of one's earnings that are eligible for tax relief based on our age at the start of the tax year.

Source https://www.citizensinformation.ie/en/money_and_tax/personal_finance/pensions/personal_retirement_savings_accounts.html

What may be not so well understood is the provision from the Revenue pensions manual:

"An individual who is not in pensionable employment is entitled to relief on contributions up to €1,525 even if the contribution exceeds the relevant age percentage limit (section 787E(4) TCA). This does not apply in the case of contributions to a PRSA for AVC purposes."

What this means in practical terms looks like this for smaller contributions to a PRSA

Analysis by Global Wealth

Under the PRSA regulations, PRSA providers cannot impose a minimum contribution greater than:

  • €300 per annum
  • €10 per electric transaction or
  • €50 per transaction for other methods of payment.

In practice the rules significantly favour these modest contributions and even if no "net relevant earnings" are available in the year of payment, the tax relief may be carried forward indefinitely.

As we set out here  this makes a strong argument that younger investors who are being provided gifts by parents or grandparents should give some consideration to making even modest contributions to a pension at the earliest possible opportunity.