Dual Income & Pension Contribution Limits

Tax Relief is given on Personal Contributions to a Pension Plan up to certain age related limits.They are as follows:

Age               Contribution Limit

Under 30        15% of Earnings

30- 39             20% of Earnings

40-49              25% of Earnings

50-54               35% of Earnings

60 and over    40% of Earnings

The maximum earnings on which relief is allowed is currently €115,000.

So what happens when you have two sources of income and want to make a pension contribution ?

I come across this question a lot when advising doctors on their pensions. Medical Consultants employed by the HSE sometimes have a secondary income from a private practice. The same goes for General Practice doctors (GPs) who receive income from the state in return for taking on patients under the Medical Card Scheme and also have an income from a private practice. This matter was always the subject of debate until the Revenue Commissioners clarified the matter a few years back. 

In summary, where someone has two sources of earnings, one from an office of employment  and the other is either non pensionable or from self employment, the pensionable earnings uses up the earnings limit first. This isn’t a problem if the combined income from both sources is below €115,000. It only becomes a problem where the combined income is in excess of €115,000 as in the following example.

Peter is a medical consultant in his forties and is employed by the HSE. His salary is €105,000. He also has a self employed income of €45,000. Someone aged between 40-49 is entitled to claim tax relief of up to 25% of their earnings on income up to €115,000. This is still the case but the relief is split between both sources of income. As he is a member of the Health Service Executive Occupational Pension Scheme we have to take his HSE salary of €105,000 from the maximum earnings limit of €115,000 before we can work out how much he can offset against his private practice income.  In this case that would be €115,000 less €105,000 = €10,000. He is only eligible to pay 25% of €10,000 = €2,500 into a Personal Pension Plan / PRSA  relating to his private practice income. He can also do an AVC or AVC PRSA in respect of the HSE scheme up to a limit of €105,000 @ 25% less contributions to the main scheme. It would be a lot simpler if he was allowed make Personal Pension Contributions up to the limit, 25% of €115,000 = €28,750, into either Pension Scheme.  

If you have any questions on the above post, you can email them to des@pensionplan.ie