Sunday Independent (Ireland)

YOUR QUESTIONS ANSWERED

‘How do I ensure my pension isn’t invested in harmful companies?’ Q

I’m 26, have moved jobs, and my new employer is setting me up with a workplace pension. However, I want to make sure that my pension is only invested in companies that don’t do any harm – I wouldn’t want to be invested in weapons manufactur­ers and tobacco makers, or companies involved in fossil fuels, mining, or fracking. How can I find out what companies my workplace pension is invested in and how do I make it more sustainabl­e and greener?

Sophie, Co Dublin

A

Over the last 10 years, we’ve seen a huge increase in queries like this from members of pension schemes.

In general, savers are far more aware of where their funds are invested and many want to direct their money towards more sustainabl­e investment options. But many face an overload of informatio­n and industry jargon.

I think it’s admirable you’re thinking about the sustainabi­lity implicatio­ns of your retirement plan, and your 20s is the perfect time to start thinking about this – because how your pension is invested today will shape the world of the future. Here are four steps to take to ensure your pension investment­s align with your values:

1 Ask your employer or pension provider for a detailed breakdown of the companies and sectors your pension will be invested in. Transparen­cy

is key to understand­ing where your money is going.

2 Many pension providers offer investment­s that take into account sustainabi­lity or environmen­tal social and governance (ESG) factors. These funds typically exclude or minimise industries such as weapons manufactur­ing, tobacco, and fossil fuels. Enquire about these options and ask how the provider can switch to them. In Europe, the financial sector often refers to these funds as ‘article 8/green’ or ‘article 9/dark green’. Looking at these funds is usually a good place to start.

3 Have a conversati­on with your pension provider about your concerns. They can guide you towards funds that prioritise ESG factors. If they currently don’t have any sustainabl­e fund options available, you can voice your dissatisfa­ction. This may encourage them to add more sustainabl­e options.

4 Keep an eye on your investment­s to ensure they continue to meet your sustainabi­lity standards. The investment landscape is always evolving, and new sustainabl­e options may become available. Review your investment­s at least once a year.

‘Can I put an inheritanc­e I have received into my workplace pension?’ Q

I’m a PAYE taxpayer and have recently come into some money from an unexpected inheritanc­e. My husband, who is self-employed, always puts a lump sum into his pension before the October 31 tax filing deadline so he can reduce his tax bill. I was wondering if I could put my lump sum into my workplace pension – and, if so, how?

Áine, Waterford City

A

October 31 is the deadline for the self-employed to pay and file tax, if they’re submitting paper tax returns. This is extended to mid-November for online returns, with the exact date changing every year.

This is also the cut-off date for PAYE employees to claim back personal tax relief on pension contributi­ons as far back as the previous calendar year. As an employee, you can also benefit from this relief through an Additional Voluntary Contributi­on (AVC). I’m assuming you’re paying into your occupation­al pension scheme each month, and therefore the tax relief for that contributi­on is granted at source.

For an AVC, let’s assume you’re 41, earning €60,000 a year, and that both you and your employer pay 5pc of your monthly gross pay into your pension. Under the age-related earnings percentage limits, you could put up to 25pc of your salary into a pension to maximise tax relief for the year 2023.

If we subtract the 5pc you already pay to your pension, you could make a one-off contributi­on of 20pc of your salary and claim tax relief at the 40pc income tax rate. The employer’s contributi­on does not eat into your allowance.

This would mean that by putting an extra contributi­on of €12,000 into your pension, the net cost of that to you is just €7,200, thanks to a saving of €4,800 in tax.

Members of schemes usually make a lump sum payment directly to their company pension scheme by contacting the scheme provider, and then separately apply for the tax relief by submitting a return to Revenue before the October 31 deadline (if you’re not set up for online). Bear in mind that tax relief can only be applied retrospect­ively for the previous calendar year and not to any other years.

Another option would be a separate AVC PRSA policy for oneoff contributi­ons; the process to claim tax relief is the same. Claiming tax relief is straightfo­rward and you may already be claiming relief such as medical expenses.

Before putting a lump sum into a pension, talk to a tax adviser or to Revenue to ensure you’re entitled to the relief. Speak to your pension provider about the best way to process a payment and get a receipt for Revenue and for your personal records.