"Is it time to reduce the tax-free lump sum of €200k?"

A good way to incentivise people to transfer their pensions overseas…

The Exchequer is foregoing income tax on my pension contributions (but still getting USC and PRSI). However, without taking any risk on its own account, it will coin it on the ARF drawdowns and on the inheritance of the ARF.

These “experts” are nothing more than cosseted semi-state workers with cosy numbers flying kites here there and everywhere.
 
Gordon Gekko said:
A good way to incentivise people to transfer their pensions overseas…
Click to expand...
What do you mean by this? Will large numbers of teachers and guards suddenly start relocating to Spain because their tax free lump sum is lower than before?

Edit: looks like this doesn't apply to DB schemes so not relevant for teachers and guards?
 
Of course it overly favours higher earners who are able to fund higher pensions. That's logical. But these higher earners have also spent a lifetime paying higher tax too.

Gordon Gekko said:
These “experts” are nothing more than cosseted semi-state workers with cosy numbers flying kites here there and everywhere.
Click to expand...
Who's lump sum under their DB pension scheme is below the €200,000 limit!
 
PGF2016 said:
What do you mean by this? Will large numbers of teachers and guards suddenly start relocating to Spain because their tax free lump sum is lower than before?
Click to expand...
No, transfer pensions to Malta to avoid the limits. Public servants can't transfer their pensions as there is no actual fund for their pension, it is taken from the exchequer each year.
 
The family know there's trouble when silly middle aged members start flying kites when there's no wind, apart from the wind they produce themselves.
 
I actually have some sympathy for the argument that we should consider dramatically lowering, or even abolishing, the TFLS.

Let's be honest, it's hardly the most progressive or targeted incentive.
AAAContributor said:
Both the ESRI economist and professor from UCD argue that reducing the lump sum could improve equitability, with the UCD professor proposing a limit of two-thirds the average earnings, so a limit of €30,000. ESRI also suggest alternative subsidies to the lump sum to better target lower and middle earners such as higher personal tax credits for those over the State pension age or a top-up to pension funds if and when the fund is annuitised.
Click to expand...
I think the idea of replacing the TFLS (for all retirees, private and public sector) with higher personal tax credits for those over the State pension age is worth exploring.

It would certainly be more equitable than the current system, which disproportionately benefits higher earners.
 
Public servants generally get 1.5x final salary on retirement as a lump sum. So a €200k threshold means public servants below €133k don't get taxed on their lump sum. In practice this is nearly all retiring public servants, the big exception class being medical consultants of course.

Pulling the threshold down to even 150k would suck in some school principals, deputy county managers, senior HSE administrators, civil service principal officers, etc. Otherwise a noisy and grumpy class of worker, including all of those being asked to develop such a policy. So it doesn't seem very likely to me.
 
NoRegretsCoyote said:
Public servants generally get 1.5x final salary on retirement as a lump sum. So a €200k threshold means public servants below €133k don't get taxed on their lump sum. In practice this is nearly all retiring public servants, the big exception class being medical consultants of course.

Pulling the threshold down to even 150k would suck in some school principals, deputy county managers, senior HSE administrators, civil service principal officers, etc. Otherwise a noisy and grumpy class of worker, including all of those being asked to develop such a policy. So it doesn't seem very likely to me.
Click to expand...
Anyone above principal officer in the civil service would get caught too. There's obviously not a huge amount of these and they also have opportunities for lucrative consultancy roles after their life in the civil service. Medical consultants go over the €2m threshold almost automatically these days, which is incredibly unfair to tell someone they have to join a mandatory DB scheme, which through no fault of their own will breach the pension limits and they'll get handed a tax bill when they retire.
Sarenco said:
I actually have some sympathy for the argument that we should consider dramatically lowering, or even abolishing, the TFLS.

Let's be honest, it's hardly the most progressive or targeted incentive.

I think the idea of replacing the TFLS (for all retirees, private and public sector) with higher personal tax credits for those over the State pension age is worth exploring.

It would certainly be more equitable than the current system, which disproportionately benefits higher earners.
Click to expand...
Pensioners are the best looked after demographic in this country. I would find it more palatable to give tax breaks to young families paying for massively expensive creche fees on top of their mortgage. By way of default, granny and granddad wouldn't be doing as much child minding, so they would benefit that way. ;)

Steven
www.bluewaterfp.ie
 
As a personal finance novice currently in the process of wrapping my head around pensions/investments etc., one of the things that I find really puzzling is the Irish Government's approach in terms of seemingly throwing up barriers down every avenue that one might pursue for wealth building. Surely it would be of long term benefit to the country if people were independently wealthy in retirement, thus removing any burden upon the state.
It's as if the Revenue want to tax you before you've even made the money - i.e. deemed disposal. Places like the US seem to have some very straightforward vehicles for the average Joe to fund on a monthly basis with excellent incentives attached - and why shouldn't working hard all your life and saving your money to be self sufficient be rewarded?
Is it simply the case that governments are short sighted and just want tax in hand asap rather than taking a long-term view (beyond their own careers perhaps)? Or am I missing something?
 
Woogie said:
Places like the US seem to have some very straightforward vehicles for the average Joe to fund on a monthly basis with excellent incentives attached
Click to expand...
So do we - they're called shares.

And far from putting barriers in the way of people investing in pensions the powers that be provide very very attractive tax breaks!
 
Woogie said:
As a personal finance novice currently in the process of wrapping my head around pensions/investments etc., one of the things that I find really puzzling is the Irish Government's approach in terms of seemingly throwing up barriers down every avenue that one might pursue for wealth building. Surely it would be of long term benefit to the country if people were independently wealthy in retirement, thus removing any burden upon the state.
It's as if the Revenue want to tax you before you've even made the money - i.e. deemed disposal. Places like the US seem to have some very straightforward vehicles for the average Joe to fund on a monthly basis with excellent incentives attached - and why shouldn't working hard all your life and saving your money to be self sufficient be rewarded?
Is it simply the case that governments are short sighted and just want tax in hand asap rather than taking a long-term view (beyond their own careers perhaps)? Or am I missing something?
Click to expand...
If the long-term benefit of the country is your yardstick, maybe it would be better is wealthy pensioners were less wealthy (but still comfortable) and there was more tax money available to pay down the national debt or meet some other spending priority.
 
time to plan said:
If the long-term benefit of the country is your yardstick, maybe it would be better is wealthy pensioners were less wealthy (but still comfortable) and there was more tax money available to pay down the national debt or meet some other spending priority.
Click to expand...
True, there needs to be a balance. Having said that I’d have serious reservations about how a significant amount of taxpayer money is spent but thats a whole other debate. From an investment point of view I think something like the Roth IRA that they have in the states where you can invest after tax income and it will grow tax free makes a lot of sense to encourage people to invest more if they have already maxed their pension contributions. In that case the govt. gets my income tax and I get a bonus for investing some of my take home pay without being taxed a second time.
 
Steven Barrett said:
Who's lump sum under their DB pension scheme is below the €200,000 limit!
Click to expand...
In the civil service, the vast majority.

An assistant secretary salary tops out at €162K, after 40yrs service a lump of €243K is payable. All other grades, after 40yrs, will get less than 200k lump sum.
 
Gordon Gekko said:
it will coin it on the ARF drawdowns and on the inheritance of the ARF.
Click to expand...

Fair enough on ARF inheritance where there is a 30% tax.

But take a typical pensioner with a full state pension and drawing down €15k a year from ARF. They are paying about 8% tax on total income. Hard to call this "coining it". Even someone with a large ARF drawing down €30k on top of a state pension is only paying about a 16% average tax rate.

This is why pension investment makes such good sense in Ireland. Generally you will get relief at the higher income tax rate during your working life but pay most of your tax at the lower income tax rate in retirement.
 
I can’t see any dramatic changes happening immediately, pension changes happen slowly, but the system has to be viable for the long term, and also be seen to be fair & equitable.

From a social equity point of view,i’d take a guess that those who reach or exceed the 200k TFLS amount, is likely applicable, to less than 15% of those with Private Pensions, and more likely, less than that. Is that fair, no its probably not. Giving such a small minority % of those with private pensions, such a tax advantage, doesn't sound socially equitable to me.

An adjustment to the TFLS ceiling amount to : x times the average industrial wage, of say 5OK, might be a fairer way to deal with this. Eg 2 times x 50k, so 100k. That sounds like a lot fairer than the existing system.

I accept there is also a potential arguement to be made for those wealthier people who have planned accordingly for their retirement, made sarcrifices, and earn bigger salaries, but the reality is, a tiny minority, are benefitting from such a generous TFLS, and our tax authorities are foregoing significant taxation as a result - all for a relatively small cohort of people.
 
It erodes trust in a government, if they say, "Save for 30 years and we promise you can take up to 200K of that tax free" then, decades later, they renege on that promise.
It further erodes trust if the reason for them reneging is not because they can't afford it, not because there's some fiscal crisis, not because they need the money to build a school or pay for medicine, but because somebody "feels" that 200K is too much.
 
You must log in or register to reply here.
Back
Top