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One of the things we tend to take for granted – the tax efficient benefits of a pension. We may not always be clear in highlighting these to you. We talk about ‘obtaining tax relief’ and ‘reducing tax bills’ and ‘maximum net relevant earnings’. It’s no wonder people don’t find pensions attractive!

So how can we make pensions more compelling that they may look too good to be true? Can the tax benefits be re-positioned by looking at other previous successful initiatives?

Learning from Special Savings Incentive Accounts (SSIAs)

By far, the biggest success in the Irish savings industry over the years! In the 12-month period to April 2002, over 1 million people bought into SSIAs. The majority saved consistently for 5 years. Over €14 billion of savings was accumulated by the maturity date in 2007.

The best thing about them, their simplicity! You save €4, the Government added €1 – a 25% free top up. Not to be sniffed at – 1 million people agreed!

A 66% return or 40% tax relief – which would you choose?

Anecdotally most people would choose the 66% return. On first glance, it’s a higher number but in reality, some don’t understand tax relief fully. Would it surprise you if both were the same?

Imagine if we said to you, we have an investment opportunity that provides 66% return. You could feel this is too good to be true. But that’s what a pension is for a higher rate tax payer.

By investing €1,000 in a pension, the net cost to you is €600 (40% tax relief) but your pension value on day 1 is €1,000. Ultimately a return of 66.6%.

How would you feel if we told you, you had an investment option that was more than twice as good as an SSIA? Intrigued, excited or sceptical? Let me explain:
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[av_row row_style=’avia-heading-row’][av_cell col_style=”]You pay
[/av_cell][av_cell col_style=”]Government pays[/av_cell][av_cell col_style=”]Total paid[/av_cell][/av_row]
[av_row row_style=”][av_cell col_style=”]€4[/av_cell][av_cell col_style=”]€1[/av_cell][av_cell col_style=”]€5[/av_cell][/av_row]
[av_row row_style=”][av_cell col_style=”]€3[/av_cell][av_cell col_style=”]€2[/av_cell][av_cell col_style=”]€5[/av_cell][/av_row]
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In simple terms, for every €4 you paid, the Government paid €1 – 25% free money!
With a pension, you pay €3, the Government pay €2 – 66% free money (assumes 40% tax rate).
It’s definitely food for thought.

We are available at any time to meet with you and discuss this. We aim to help you make the necessary decisions on how best to maximise your investment and reduce your overall tax bill. Always remember, money given to the taxman is gone forever. While money you invest in a pension comes back to you at retirement. It’s worth it in the end!
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