Most of my income comes from self-employment. I also have a salaried role that earns just over the auto-enrolment threshold.
I have a private pension to which I contribute the maximum amount each year.
Will the auto-enrolment contributions, including my employer’s contributions, have any impact on the amount I can invest in my own private pension? Does any impact apply to all contributions (ie from my employer and the State) or only to my own contributions?
Or is it the case that, as these are not tax deductible, I will still be able to claim tax relief on pension contributions based on all my other income? Mr EB
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Auto-enrolment has understandably sparked a number of queries from readers as we kick off the new year. The new mandatory workplace pension came into force at the start of the month, and many people are still trying to get their heads around what it means for them.
This is particularly the case for people like you, whose working life is not just a straightforward case of working for one employer in a PAYE capacity.
You are very sensibly maxing out contributions to your private pension as it stands. But what about auto-enrolment? And will it limit your capacity to keep providing for your retirement as you have been doing?
You are caught in a bit of a bind. On one hand, you are locked out of auto-enrolment in relation to the bulk of your earnings as there is no provision for people who are self-employed to enrol in the new workplace pension, My Future Fund, either in a voluntary or a mandatory capacity.
On the other hand, as you have salaried income of more than €20,000 and are aged 23-60, you are being enrolled into the My Future Fund in relation to that income.
From this month, 1.5 per cent of your earnings from that PAYE post will be put into My Future Fund, alongside a similar amount from your employer and a third of that from the State.
Those figures will rise over time – to 3 per cent from the start of 2029, 4.5 per cent in 2032 and 6 per cent from 2035 onwards.
In truth, given the scale of your personal pension contributions dwarfs anything that might happen under auto-enrolment now or in the future, your concern is understandably more on the impact auto-enrolment might have on the amount you can invest tax free in your private pension.
You are no doubt aware – but others might not be - that how much of your earning you can put into your pension pot while availing of tax relief depends on your age.
If you are under 30 years old, you can get tax relief on 15 per cent of your gross income if it is going into a pension fund. That rises to 20 per cent for someone in their 30s, 25 per cent in your 40s, 30 per cent if you are aged 50-54, rising to 35 per cent in your later 50s. Anyone over the age of 60 can get tax relief on as much as 40 per cent of their earnings if they are going into a pension.
If you are lucky enough to have earning of more than €115,000, those percentages are capped against that salary level.
The good news is that you can continue to claim tax relief on anything you are putting into your private pension as long as it comes from “net relevant earnings” which, as Revenue points out, includes “income from employments, trades and professions but not other sources such as rental income or investments”.
This is because any contributions you make under auto-enrolment do not eat into the amount of tax relief available to you as there is no tax relief on these contributions.
The government top-up does not count as tax relief. In fact, from the Government point of view, the scheme was deliberately designed so that there would not be tax relief available on contributions.
As such, as Revenue reassures me: “An individual’s contributions to auto-enrolment/My Future fund do not count towards the age-related limit for an individual’s pension contributions.”
However, Revenue does also remind me that your entitlements under My Future Fund do count towards the €2.2 million standard fund threshold – the figure was increased from €2 million at the start of the year. Tip over this threshold and you create all sorts of tax issues for yourself. So you will need to keep an eye on your My Future Fund balance, no matter how modest.
Similarly, any tax-free lump sum you eventually take from My Future Fund will also count towards the overall lifetime tax-free lump sum limit of €200,000.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
