# Defined Benefit Pensions and BIK



## Purple (13 Jun 2019)

If my employer pays me a bonus or provides me with a non-cash perk I have to pay Benefit in Kind on the value of those perks.
There is a cap on the maximum contribution anyone can make into their defined contribution pension. 
Given that the value of many Defined benefit pensions is  considerably higher than those maximum contributions allowed for DC pensions should those with the DB pensions be liable for BIK on the difference?


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## NoRegretsCoyote (13 Jun 2019)

Legally, no.

Morally, yes.

People on high DB pensions can indeed be hit with a special tax on people with large pension pots. Not sure what it's called.


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## Purple (13 Jun 2019)

I asked should, not can.
Judges in particular would take a hammering.


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## Steven Barrett (13 Jun 2019)

Purple said:


> If my employer pays me a bonus or provides me with a non-cash perk I have to pay Benefit in Kind on the value of those perks.
> There is a cap on the maximum contribution anyone can make into their defined contribution pension.
> *Given that the value of many Defined benefit pensions is  considerably higher than those maximum contributions allowed for DC pensions* should those with the DB pensions be liable for BIK on the difference?



The maximum contribution are both calculated under the same basis. For a 25 year old on €50,000 a year, starting a new job, to age 65, the employer can contribute €24,274 a year to their defined contribution pension. That is what the Revenue calculates it would cost to provide a pension of 2/3 final salary. 

Whether an employer will pay this or not is another issue. 

If you start going down the road of taxing people more for having better pensions, can you not start taxing people more for having better employers who provide benefits for their staff? 

Steven
www.bluewaterfp.ie


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## Purple (13 Jun 2019)

SBarrett said:


> The maximum contribution are both calculated under the same basis. For a 25 year old on €50,000 a year, starting a new job, to age 65, the employer can contribute €24,274 a year to their defined contribution pension. That is what the Revenue calculates it would cost to provide a pension of 2/3 final salary.
> 
> Whether an employer will pay this or not is another issue.
> 
> ...


In case of Gardai they retire on a full pension after 30 years. The cost of that is up to 80% of salary. If the employer above contributed €40,000 a year to the defined contribution pension of their employee how would Revenue react?


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## Steven Barrett (13 Jun 2019)

The Revenue have very clear rules on how much can be contributed to a pension scheme. If it is within those limits, the Revenue will have no issue. 

There are things you can do about it: 

Work for yourself and make enough profit so you can contribute those large sums yourself. 
Get a job with a defined benefit pension.
Also, the Gardai being able to retire after 30 years is an exception to the rule. Most Gardai have to deal with the dregs of society and some really awful situations that the rest of us can't even imagine. I don't begrudge them being able to retire after 30 years service. 


Steven
www.bluewaterfp.ie


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## Purple (14 Jun 2019)

SBarrett said:


> The Revenue have very clear rules on how much can be contributed to a pension scheme. If it is within those limits, the Revenue will have no issue.
> 
> There are things you can do about it:
> 
> ...


I'm not getting into the specifics of Garda pay. They may well deserve their €100,000 a year average pay and pension. I don't know. 
Revenue have very clear rules on how much can be contributed to a DC pension scheme. What are the rules in relation to DB schemes?
If the DB scheme will provide a higher pension as a percentage of income than a DC scheme funded to the maximum of what is allowed then should the beneficiaries of the DB scheme have to pay BIK on the nominal value of the difference?


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## Steven Barrett (14 Jun 2019)

Purple said:


> I'm not getting into the specifics of Garda pay. They may well deserve their €100,000 a year average pay and pension. I don't know.
> Revenue have very clear rules on how much can be contributed to a DC pension scheme. What are the rules in relation to DB schemes?
> If the DB scheme will provide a higher pension as a percentage of income than a DC scheme funded to the maximum of what is allowed then should the beneficiaries of the DB scheme have to pay BIK on the nominal value of the difference?



The maximums are the same whether it is a DB or a DC pension. The difference is having an employer (or the State) willing to provide the cost of those benefits. 


Steven
www.bluewaterfp.ie


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## Purple (17 Jun 2019)

SBarrett said:


> The maximums are the same whether it is a DB or a DC pension. The difference is having an employer (or the State) willing to provide the cost of those benefits.
> 
> 
> Steven
> www.bluewaterfp.ie


So an employer in the private sector can contribute an additional 80% of an employees salary into a DC pension fund from the day that employee starts work with no tax implications?


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## Steven Barrett (17 Jun 2019)

Purple said:


> So an employer in the private sector can contribute an additional 80% of an employees salary into a DC pension fund from the day that employee starts work with no tax implications?



They can potentially contribute more. There is a formula used that is laid out by the Revenue. This is applied to both DB and DC pensions as the maximum pension permitted under both is 2/3 of final salary. 

Under DB schemes, the employer has assumed the cost of providing the benefits in retirement. Under DC, they just commit to a fixed amount each year. The revenue funding rules have always been the same. 

Steven
www.bluewaterfp.ie


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## Purple (17 Jun 2019)

SBarrett said:


> They can potentially contribute more. There is a formula used that is laid out by the Revenue. This is applied to both DB and DC pensions as the maximum pension permitted under both is 2/3 of final salary.
> 
> Under DB schemes, the employer has assumed the cost of providing the benefits in retirement. Under DC, they just commit to a fixed amount each year. The revenue funding rules have always been the same.
> 
> ...


Does the employee have to work for the employer for a given minimum period or can someone employ me for 10 years and fund a pension of 2/3 of final salary over that 10 year period?
I assumed that it was 40 years but you are saying that the rules are the same and Gardai retire after 30 years.
Is the tax free lump sum of 150% of total final salary also included in the 2/3 and if so how does that work?


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## Steven Barrett (17 Jun 2019)

You can't get a pension of 2/3 salary without having the years. There is an uplifted scale where you can get the maximum pension of 2/3 if you have 10 years service at normal retirement age. This doesn't apply if you retire/ leave service before the normal retirement age. 

The 150% lump sum is taken from the 2/3 fund, it is not in addition to the 2/3 pension. 

Occupations such as Gardai, prison wardens are exceptions to the rules. 


Steven
www.bluewaterfp.ie


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## Purple (17 Jun 2019)

SBarrett said:


> You can't get a pension of 2/3 salary without having the years. There is an uplifted scale where you can get the maximum pension of 2/3 if you have 10 years service at normal retirement age. This doesn't apply if you retire/ leave service before the normal retirement age.
> 
> The 150% lump sum is taken from the 2/3 fund, it is not in addition to the 2/3 pension.
> 
> ...


Okay, should the exceptions to the rule pay BIK?

On a side note, when pay rates for State employees are given should the full cost of their pensions be added to the figures currently given?


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## Steven Barrett (17 Jun 2019)

Purple said:


> Okay, should the exceptions to the rule pay BIK?



Why? Exceptions to the rule are in occupations where there is a lot of pressure, such as gardai, prison wardens, pilots. It has accepted that they should not be working in these occupations in older age. 

Should a 65 year old be keeping order in a prison wing? Do you want an old pilot who has been worn out from 35+ years of flying commercial planes? 




Purple said:


> On a side note, when pay rates for State employees are given should the full cost of their pensions be added to the figures currently given?



I lost count of the number of arguments I had when bench marking came in about the cost of their pension as well as job security. The cost of expensive pension benefits should be included in the value of any job whether it is public or private sector. People usually just count their salary as the value of their package. 


Steven
www.bluewaterfp.ie


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## Purple (18 Jun 2019)

SBarrett said:


> Why? Exceptions to the rule are in occupations where there is a lot of pressure, such as gardai, prison wardens, pilots. It has accepted that they should not be working in these occupations in older age.
> 
> Should a 65 year old be keeping order in a prison wing? Do you want an old pilot who has been worn out from 35+ years of flying commercial planes?


There's not too many people laying blocks at 65 either. Should block layers and other people in those sort of manual labouring jobs also be able to fund a 3/2 of earnings pension over 30 years?





SBarrett said:


> I lost count of the number of arguments I had when bench marking came in about the cost of their pension as well as job security. The cost of expensive pension benefits should be included in the value of any job whether it is public or private sector. People usually just count their salary as the value of their package.
> 
> 
> Steven
> www.bluewaterfp.ie


No argument with me there.


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## Steven Barrett (19 Jun 2019)

Purple said:


> There's not too many people laying blocks at 65 either. Should block layers and other people in those sort of manual labouring jobs also be able to fund a 3/2 of earnings pension over 30 years?



You could certainly argue that case...


...although you will find a very small percentage believe in pensions or contribute to one outside the CWPS pension scheme which is inadequate to provide an income for most in retirement. 

Steven
www.bluewaterfp.ie


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## orka (20 Jun 2019)

SBarrett said:


> They can potentially contribute more. There is a formula used that is laid out by the Revenue. This is applied to both DB and DC pensions as the maximum pension permitted under both is 2/3 of final salary.
> 
> Under DB schemes, the employer has assumed the cost of providing the benefits in retirement. Under DC, they just commit to a fixed amount each year. The revenue funding rules have always been the same.
> 
> ...


If a DB scheme is essentially a promise to provide benefits. the employer doesn't necessarily have to actually contribute to the scheme if an increased promise is made (if the scheme is otherwise adequately funded), do they?

For example, say a 55 year old with 30 years service on a salary of 50K in a 1/60ths scheme and say we value their accrued benefit using a factor of 25 - so their accrued benefit is worth 625K (50K * 30/60 * 25).  If that person gets a payrise to 75K, in an instant, their accrued pension benefit increases from 625K to 937,500 (75K * 30/60 * 25) - is this an untaxed benefit in kind of 312,500?  Does it make a difference if the employer actually contributes the extra 312K?  If the scheme is adequately funded so that the employer doesn't make an actual 312K contribution, is the BIK just ignored?


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## Purple (20 Jun 2019)

Public servants have DB schemes therefore there will never be any attempt to look at this.


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