Time is nearly up for pension contributions to shelter your 2011 income. If you’re self-employed, your tax return for 2011 is due by Oct 31.  If your return is filed online, and if any tax due is paid by direct debit, the extended deadline is Nov 15. Pension contributions to shelter your income must be paid in advance of the appropriate deadline. In other words, the extended deadline of Nov 15 can apply for pension payments, so long as your return is filed online, and any balance of tax for 2011 is paid by direct debit (this is known as the pay-and-file online option).

Pensions are one of the last great tax shelters available to the masses.

It’s easy to sign up for a pension, and they are available through a host of providers. You can make contributions to a pension company, to the pensions arm of a bank, or through an independent broker.

An independent pensions broker is the equivalent of a supermarket rather than a boutique, and can be useful, as a broker may be able to offer a wider variety of pension products. For those with substantial amounts to invest, it’s possible to have you own tailored fund, which can invest in assets of your choosing. These are known as self-directed or small, self-administered pension schemes.

Ploughing money into a pension gives tax relief at up to 41%.

For every €1,000 contributed, your tax bill for 2011 can be reduced by €410, if you are paying tax at the high rate. There are rules limiting the amount you can contribute.

(1) A person can only contribute up to a set amount of their income

(2) The amount of income that qualifies for relief is restricted to €115,000.

(3) If your pension pot is worth more than €2.4m, any further contributions won’t qualify for tax relief.

(4) Contributions must be paid before the cut-off dates mentioned above.

Pensions have had bad press over recent years, and, of course, there are extreme examples.

How you invest your pension funds is up to you, and the range of options is vast, from having your pension fund sit in a deposit account, to capital guaranteed options, property options, and high-risk options based on shares in emerging economies.

The choice of where you invest your pension fund should be decided by you, in conjunction with a financial advisor. The choice of funds in which you invest should be weighed up by looking at factors such as your approach to risk and your stage in life. Getting money out from your pension, and knowing how your pension payments at retirement are taxed, is fundamentally important.

Normally, a person can’t access their pension fund before the age of 60, but, after this age, it’s important to note, you can access your pension fund even if you keep working. A standard pension allows a person to access 25% of their fund at retirement.

The remainder of your pension is drawn out as income, and the manner in which you can draw the income out depends on the rules of the scheme and the amount you have available in your pension pot. The amount of tax that you will pay on drawing out your pension depends on the amount of money you draw out, and on your other income at that time.  The tax relief on pensions continues to provide a huge incentive, but it is important that you understand what you’re signing up for.

As always, each individual’s circumstances should be looked at, for the best advice.