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Pension
payments and tax relief
Pension policies have had a bad press recently, with the Equitable Life debacle and the slump in Stock Market values - but the tax relief for pension contributions is still attractive, and many people regard this as a good way of providing for their retirement. If the market has reached the bottom, it is the best time to invest - if only it was possible to be sure!
Many people therefore try to pay the maximum possible contributions, which are based on a percentage of your earnings. If you have not paid the maximum contribution in one year, you can top it up by paying more up to 31 January in the following year and "carrying back" the contribution.
The rules on this procedure are complicated, and it is worth making sure that all the paperwork for a contribution will be valid before you make it. As usual, hurrying in order to beat a tax deadline may lead to a poor investment decision, so it is better to plan this well before 31 January.
People who have the old style "retirement annuity plans" (a policy that started before 1 August 1988) can still pay premiums up to 5 April and carry them back to the previous year - the rules have not changed. They also still pay 100% of the premium to the insurance company and claim back all the tax from the Revenue, while people with more recent policies pay 78% to the company and enjoy tax relief partly by having the Revenue contribute 22% to the fund. So the difference between the types of policy is particularly confusing, and if you have any of the older-style plans, it is particularly worthwhile to check what you can pay and when.
It seems likely that the rules on pension contributions will be changing again in 2005. The effect is likely to be greatest on those who have very large pension funds, but everyone who has a pension plan will be affected in some way. If you usually try to maximise
your pension contributions for tax purposes, you will want to keep an eye on the new rules as they are finalised.
| Action Point! |
| Review Pension Plans But Don'T Rush In |
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