The 31st of October might be known for ghosts, goblins and Halloween scares but for the self-employed, there’s another horror… This important date means the taxman is looming and will be asking for payment!
Relax, at Campion, we’re here to show you how you can make tax less scary and save for your future.
Can I reduce the amount of tax I pay each year?
The good news is that you may be able to reduce the amount of tax you pay each year by saving for your retirement with an approved pension plan.
In some cases, you may even be able to reduce your tax bill to zero. You just need to be aware of some Revenue rules around how much you can reduce your tax bill by. These are linked to your age and taxable earnings each year.
Assuming you are on the higher rate of tax (40%), for every €1,000 you put into a savings account for retirement planning (i.e. a pension), you will reduce your bill to Revenue by €400. If you put €10,000 into your pension plan before the 31st October it will reduce your tax bill by €4,000.
So, before the 31st October you have two choices. You can either pay your tax bill and never see that money again. Or, you can deposit your earnings into an approved pension plan. Not only will this reduce your tax bill but the pot of money will also be there to support you in your retirement.
Other benefits of setting up a pension
Any money paid into a pension plan will benefit from tax relief, subject to Revenue limits. No other form of saving qualifies for this benefit. So, as you can see, a pension plan really is the most tax-efficient way to save for your old age.
However, aside from reducing the amount of tax you pay each year, a pension brings a whole array of other benefits.
1. On average, we’re all living longer
Thanks to healthier lifestyles and advances in medical treatments, people are living much longer these days. So, to make sure you are adequately provided for financially when you finish working, you’ll need to build a bigger pension fund.
2. It can supplement your State pension
As of today, anybody aged 66 or over, who has paid enough (PRSI) contributions is eligible for an Irish State pension. However, at €243.30 per week, your State pension may not be sufficient for the quality of life you want in retirement.
Unless you have an additional income when you retire, you may not have enough money for your retirement needs. Setting up a personal pension plan can ensure you’ll be financially secure after retirement.
3. Your payments can grow tax-free
The money in your pension plan can currently grow tax-free. This means it has the potential to grow faster than in other types of savings plans that are subject to tax.
4. Delay costs money
Providing yourself with the retirement income you’ll need means building up money in your pension fund. But, the longer you wait before starting your plan, the larger the payments you’ll need to pay.
5. You can potentially benefit from the ‘downs’ as well as the ‘ups’
Your regular contributions can benefit from periods of stock market volatility – particularly in the early years. When investment values are low, you can buy more units with your contribution than you could have when unit prices were higher.If the market subsequently recovers, then all these units can benefit from this recovery, making stock market volatility work in your favour.
6. If you move jobs, you can take your plan with you
If you change jobs, you can take your pension plan with you — no need to worry about losing your previous savings or having to set up a new pension scheme.
7. It’s never too late
Even if you’re approaching retirement, it may still be worth paying money into a pension plan, as you will be tax-efficiently setting something aside for your future.
8. You can draw a tax-free cash sum at retirement
When you retire, you can currently take part of your pension fund as a tax-free lump sum (subject to a lifetime limit of €200,000). This can enable you to do those things you’ve always promised yourself.
How Campion Insurance can help
Support from professional financial advisors, like our expert Campion team, can help make the process of setting up a pension plan as smooth and straightforward as possible.
There are a few key things you need to be aware of, such as:
The limits on the amount of money you can put into your pension plan for tax relief purposes
The choices of approved pension plans available to you – we will advise you on the best option for your lifestyle
There are some rules around how you can access your pension fund when you reach retirement age
How to claim your tax relief
What happens to your pension if you die
What happens if you retire early due to ill health
When you have a meeting with us, we’ll go through these in detail so you can find the right plan for you and significantly reduce your tax bill. So, if you’re ready to save money and put yourself in good stead for your retirement, why not contact us today? You can also try our pension calculator tool.