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PAY LESS TAX by saving for your retirement: a comprehensive pension guide

Paying into a pension can be a powerful strategy to reduce your tax liability, and it’s available to a wide range of individuals, including employees, civil service workers, proprietary directors, and sole traders. However, it’s crucial to understand the rules and limits that apply to your specific situation and seek specialist financial advice when needed. In this blog post, we’ll explore how you can claim tax relief on your pension contributions at tax time, using practical examples to illustrate the potential benefits.

Self-employed – business owners, freelancers, contractors

If you’re self-employed, you must calculate your tax liability and pay your liabilities by the deadline, typically by October 31st or November 15th when using the Revenue Online Service (ROS). This deadline also applies to pension contributions if you wish to backdate the tax relief to the previous tax year (e.g., 2022). Let’s delve into an example to understand the impact:

Example 1: Patrick’s Tax Savings with a Pension Contribution

Patrick is 35 and earns a gross salary of €50,000. At age 35, the maximum pension contribution that can be made is €10,000. Patrick decides to make a €10,000  contribution to his pension, and as a result pays €4,000 LESS income tax compared to someone who makes no pension contributions. See the table below:

How can employees reduce their tax bill with a pension contribution?

Employees who feel they are paying too much tax may also be entitled to a refund of part of the Income Tax they paid in the previous year by making a lump sum pension contribution and electing to backdate the tax relief to that year. Here’s an example:

Example 2: Siobhan’s Tax Refund as an Employee

Siobhan, is a 39-year-old Marketing Manager and paid Income Tax at the 40% rate in 2022. She contributes €10,000 to her pension and opts for backdated relief to 2022. As a 40% taxpayer, she receives a tax refund of €4,000. Her net outlay for the contribution is €6,000.

For employees who paid Income Tax at the 20% rate in 2022, the refund of Income Tax will be €200 for every €1,000 contributed to a pension plan. The potential tax savings can be substantial, depending on your income and tax rate.

Tax-saving Opportunities for Proprietary Directors

Proprietary directors, even if their income is mostly taxed under the PAYE system, are obliged to file self-assessment tax returns by the deadline and pay any outstanding Income Tax, PRSI, and USC from the previous year.

They can also reduce their total tax liability and potentially receive a refund by making a lump sum pension contribution and backdating the tax relief to the previous year.

Let’s consider an example:

Example 3: Lucy’s Tax Refund as a Proprietary Director

Lucy is a proprietary director of a beauty company, and paid Income Tax at the 40% rate in 2022. She contributes €20,000 to her pension and backdates the tax relief to 2022. As a 40% taxpayer, she is entitled to a tax refund of €8,000. Her net outlay for the contribution is €12,000.

Take action now to save on your tax bill and boost your pension

There are three very attractive tax benefits that confirm your pension is the best savings plan you will ever get, and will enable you to enjoy the best holiday of your life:

  1. You can decide to pay less than the maximum allowed permitted and/or spread out your pension contributions quarterly/monthly. Your pension can be tailored to suit your financial needs and budget.
  2. In addition paying LESS Income Tax; any growth within your pension fund is allowed grow TAX FREE.
  3. You are also entitled to a TAX FREE LUMP SUM at retirement.


Taking advantage of tax relief on pension contributions can significantly reduce your tax liability and help you secure your financial future.

Whether you’re self-employed, an employee, or a proprietary director, understanding the rules and seeking professional advice can lead to substantial tax savings.

By making informed decisions and taking action before the deadlines, you can enjoy the benefits of tax-efficient pension planning.

Remember that age-related limits may apply, so consult with a financial expert to maximise your savings while securing your retirement.

Get in touch with an experienced financial advisor from Hennelly Finance to find out more and what you might be able to claim this tax time.

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