Dilemma
I have multiple sources of earnings and want to ensure that I maximise my pension contributions to avail fully of any tax benefits before the Revenue’s October 31 deadline.

If I already contribute to the scheme run by my employer, can I also contribute to a personal pension plan, and what are the potential tax implications?

Answer
This query is important for anyone with multiple sources of income, but particularly the self-employed. It also illustrates the care needed when calculating the tax implications of personal pension contributions, and shows that not everyone has a straightforward pension arrangement.

For example, the maximum earnings on which an individual is entitled to tax relief on pension contributions this year is €275,239. Eligible contributions relate to investments in an array of pension arrangements, such as employer pension schemes, personal pension plans, section 785 policies, personal retirement savings ac count s (PRSAs) and overseas pension plans.

This restriction applies only where individuals have more than one source of earnings that they wish to put towards their pensionable income. If contributions in any year exceed the limit for which tax relief is available, the excess may be carried forward and treated as contributions in the following year.

This may be relevant for self-employed people whose income stream fluctuates from year to year.

Using the example of a 38year-old consultant employed by the Health Service Executive (HSE) will provide clarity. Let’s give him an annual salary of €140,000 and private practice fees - which are relevant earnings - of €215,000 per annum.

Based on his age, he can contribute 20 per cent of his net relevant earnings to a personal pension plan, PRSA or section 785 policy. He is already contributing 5 per cent of his HSE salary to the GMS superannuation scheme.

Working out his available remaining tax relief can prove costly, if not treated correctly.

His remaining tax relief limit in respect of his self-employed practice income is not 20 per cent x €215,000 (i.e. €43,000), but 20 per cent x [€275,239 minus €140,000], which is 20 per cent of €135,239, equal to €27,047.80 per annum.

As he is already making pension contributions from hi s €140,000 annual earnings, this leaves just €135,239 (€275,239 minus €140,000) of remaining earnings on which he can claim tax relief on a personal pension plan, PRSA and section 785 policies.

This arises because the maximum total earnings on which he can claim tax relief in respect of all personal contributions to all pension arrangements is €275,239.

Looking out for your future means investing in a pension, as this reduces your tax bill while helping you achieve peace of mind and prosperity for retirement.

The above case study is based on current Revenue rules relating to pensions, and should not be viewed as tax advice. Tax-related matters should be referred to an independent tax adviser.

Mark Reilly is pensions development manager with Hibernian Life & Pensions