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Your Questions: Can I keep paying into a pension during an unpaid work break?

 

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'It is important to join or set up a pension plan at your earliest opportunity.' (stock image)

'It is important to join or set up a pension plan at your earliest opportunity.' (stock image)

'It is important to join or set up a pension plan at your earliest opportunity.' (stock image)

Q: As a mother of twins starting school in September, I have, with my employer's agreement, decided to take an unpaid career break for 12 months from September. While I will have no income during this time, I would like to keep up my pension contributions as my employer will continue to match them. But I wonder if I can continue to receive tax relief. I am 41 and am currently contributing 5pc of my €55,000 salary into pension.

A: You can continue to receive tax relief on your pension contributions, according to Glenn Gaughran of the Independent Trustee Company.

He said you are currently putting 5pc of your salary in but, at your age, you are actually allowed tax relief for up to 25pc of your salary. This means you have plenty of scope to claim tax relief on additional pension contributions against your 2020 income. And you can make those additional contributions any time up to the tax deadline of October 2021, he said. The only difference is that the tax relief on the contributions you make during your unpaid career break will need to be reclaimed in your tax return in October 2021.

Mr Gaughran said it is important to join or set up a pension plan at your earliest opportunity. The funds built up can continue to grow even if you take time out during your career. For people in your situation, it is straightforward enough, as you get tax relief and your employer is willing to match your contributions. For every €100 you put in during this time, Revenue will give you €40 back and your employer will add in €100. So, the €200 in your retirement pot has cost you just €60.

Q: I am currently receiving the pandemic unemployment payment (PUP) as my employer has had to temporarily close due to Covid-19. I have heard the PUP is due to finish in August and I am worried about meeting my bills in September if I don't have my job back by then. If I had to rely on credit for a month or two to get over the hump, what are my best options in terms of the interest payable?

A: PUP has been extended until April next year - although at a decreasing rate. But while there are a number of options for credit, taking on any debt should be approached with caution, says chief executive of the Credit Union Development Association, Kevin Johnson. He said even more care and attention needs to be given to the structure of your loan and to the lender behind it.

One option is to take out a personal loan through your credit union or bank. Loan rates can be competitive and the amount you take out and the term over which you pay it back will reflect your financial situation, he said.

There is security in knowing there are safeguards in place to ensure you don't over-extend yourself. You should book an appointment with your credit union or bank to discuss your financial predicament and the potential options, Mr Johnson advised.

Q: I am working on a new construction job as an electrician on a big housing development. This is only my third year doing sub-contracting work. I have looked at my first deduction authorisation form, and it looks like I have been taxed at a rate of 20pc for "relevant contract tax". But in the last two years this tax has been zero. The contractor just said I have to take it up with the Revenue but where to start?

A: Special rules relate to payments made by principal contractors to sub-contractors in the construction, forestry and meat-processing work areas, according to chief executive of Taxback.com, Joanna Murphy. Relevant contract tax (RCT) is a withholding tax which applies to such payments and the RCT system applies to self-employed people like yourself.

However, the rate at which it is calculated depends on your compliance levels with Revenue to date, she said. There are three different rates in operation: 0pc for sub-contractors who have a completely up-to-date compliance record; 20pc for those whose record is "substantially" up to date; and a rate of 35pc is applied to those whose compliance record would be classed as "poor" or who have not yet registered with Revenue.

Ms Murphy said it appears you have fallen into the second category. The reason for this could be that you were late filing your self-assessed tax return last year, or perhaps your submission or payment was incomplete. To know for sure, you will need to enquire with Revenue directly.

Once the compliance issues have been resolved, you can self-review your RCT rate in ROS and receive a new rate determination.

It is important to join a pension plan at the earliest opportunity, allowing the funds built up to grow even if you take time out of work.

There are a number of options for credit but any debt being taken on needs to be considered with caution, experts advise.

Irish Independent