It could be claimed that the most important savings an individual should do is to contribute into their pension fund.
Arguably saving should be the very first thing you do whenever you get paid, before you have the chance to spend that money someplace else. If you’re disciplined about this ‘pay yourself first’ approach to saving, you’ll be amazed at how much you can accumulate over a longer time period.
There are many different kinds of savings plans and products, however, focus should be directed to the tax benefits of paying pension contributions to save for your retirement.
There is plenty of reason why we don’t pay into pension schemes, however,in our experiences the main reasonclients have reluctance to contribute to a pension fund is that they will not be able to access that money for decades to come. As we all know, it’s much easier to talk yourself into spending on something you can enjoy today or tomorrow!
The top rate of tax in Ireland is 40%, and people start paying at this rate as soon as they reach a salary of €35,300. Because the government allows tax relief on pension contributions, somebody who is on the higher rate of tax, and pays €500 a month into a pension, would save €200 in tax every month.
This means that a 40-year-old would save a massive €67,200 in tax between now and the time they reach age 68!
To put this slightly differently, if that 40-year-old doesn’t contribute to a pension, they will pay tens of thousands of euro in unnecessary taxes over the next 28 years. Looked at that way, the decision really is a no-brainer.
“Surely it is much better to pay some money to yourself each month rather than pay it to the tax man?”
If you pay and file your tax return through the Revenue’s online service, you have until November 12th next to make a pension contribution so that you can backdate the income tax relief into the 2018 tax year. If you don’t use Revenue online, you must do this by October 31st.
There is no option to defer! If you don’t do it by the deadline, the opportunity is lost.
Your financial advisor can give you more information about the benefits of making pension contributions. But one thing is certain — none of us ever regretted having to pay less tax!