# Stamp Duty Levy on Pensions 0.6% - Legal?



## JOM (1 Sep 2011)

I recently received communication from my PRSA administrator notifying me they will deduct 0.6% from the value of my PRSA at June 30th 2011 - 2014. Has it been clearly/legally established that they are entitled to do this? Is there any way to avoid this?


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## Dave Vanian (1 Sep 2011)

JOM said:


> Has it been clearly/legally established that they are entitled to do this?


 
Yes - they are not only entitled but obliged to collect this on behalf of Revenue.  Finance (Number 2) Bill 2011.  



JOM said:


> Is there any way to avoid this?


 
Only if you're of age to take your retirement benefits.


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## monagt (1 Sep 2011)

> The levy does not apply if you are invested in:
> an Approved Retirement Fund (ARF);
> an Approved Minimum Retirement Fund (AMRF);
> a PRSA that is being used for ARF or AMRF purposes



How does 





> a PRSA that is being used for ARF or AMRF purposes


      differ from a normal PRSA?


[broken link removed]


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## LDFerguson (1 Sep 2011)

It's a PRSA from which the lump sum has been withdrawn and the balance is being used as an Approved (Minimum) Retirement Fund substitute.  In other words, a PRSA owned by a person who is of age to draw their retirement benefits.  

The applies to pre-retirement pension funds.  The majority of post-retirement pension vehicles are exempt.  A PRSA can be used pre and post-retirement.  When used for the former, it's not exempt; when used for the latter it is.


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## boaber (2 Sep 2011)

JOM said:


> Has it been clearly/legally established that they are entitled to do this?



Section 4 Paragraph 5(A) of the Finance (No.2) Act 2011 states:



> A chargeable person who, in relation to the assets of a scheme, being a scheme approved by the Commissioners, is liable to pay the duty charged under subsection (3) on a statement delivered by the chargeable person pursuant to subsection (2) shall, for the purposes of payment of the duty, *be entitled to dispose of or appropriate such assets of the scheme as are required to meet the amount of the duty so payable *and the scheme shall not cease to be a scheme approved by the Commissioners as a consequence of any such disposal or appropriation by the chargeable person.



Paragraph 6 goes on to state:



> Where in pursuance of this section a chargeable person disposes of or appropriates an asset of a scheme in accordance with subsection (5)(a), then no action shall lie against the chargeable person in any court by reason of such disposal or appropriation.


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## monagt (2 Sep 2011)

> It's a PRSA from which the lump sum has been withdrawn and the balance is being used as an Approved (Minimum) Retirement Fund substitute. In other words, a PRSA owned by a person who is of age to draw their retirement benefits.
> 
> The applies to pre-retirement pension funds. The majority of post-retirement pension vehicles are exempt. A PRSA can be used pre and post-retirement. When used for the former, it's not exempt; when used for the latter it is.




Is is 0.6% per tax year? or June-June?

In other words, if the pre retirement PRSA goes post retirement PRSA or ARF/AMRF/Annuity before June 30th 2012 then the deduction does not happen?


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## Dave Vanian (2 Sep 2011)

monagt said:


> Is is 0.6% per tax year? or June-June?
> 
> In other words, if the pre retirement PRSA goes post retirement PRSA or ARF/AMRF/Annuity before June 30th 2012 then the deduction does not happen?


 
I know that in 2011, Zurich Life just put through a deduction of 0.6% on eligible policies with effect from 30/6/2011.  This would suggest that if one goes post-retirement before June 2012, the 2012 and subsequent levy could be avoided.  But I'm not 100% sure.


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## boaber (3 Sep 2011)

Yes it depends on the status of the policy as at 30 June each year.

So, if it is a post retirement (vested) PRSA on 30/6/2012, there will be no levy due next year.


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## pconsidine (21 Sep 2011)

The legislation seems to make the owner of the money chargeable for the levy. The question is - Who owns the fund? Most private pensions are notional shares of composite funds controlled and managed by the pension companies. The investors have no right of ownership to any of that fund. Their rights are purely contractual (for example, if the pension company went bust, the investor wouldn't have any right to recover his or her "fund" from the receiver on the basis that it is not the property of the pension company).

It thus appears that insofar as fund-based pensions are concerned (i.e. Most private pensions), the pension company is liable for the levy, and unless the company has specific authority under the terms of its contract with the investor, it cannot compensate itself for the levy by making the investor pay.

I notice that some of the pension companies have had the affrontry to deduct this value from investors intitlements ahead of the designated date.

But what really p.....es me off is the whining of the pensions industry over this levy. I didn't notice much contrition when their world beating fees and world-beating underperformance resulted in a destruction of pension wealth many multiples of the 0.6% they are so outraged about!

Perhaps, as an act of contrition for the lousy value they have given to investors in their rotten products in recent years they might volunteer to pay the levy out of their handsome fees and charges -  and before someone brings the issue of who exactly is chargeable for this levy before the courts of law.

Fat chance.


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## Baracuda (22 Sep 2011)

pconsidine said:


> The legislation seems to make the owner of the money chargeable for the levy. The question is - Who owns the fund? Most private pensions are notional shares of composite funds controlled and managed by the pension companies. The investors have no right of ownership to any of that fund. Their rights are purely contractual (for example, if the pension company went bust, the investor wouldn't have any right to recover his or her "fund" from the receiver on the basis that it is not the property of the pension company)..


Perhaps a little more research would be appropriate. I do appreciate that this is an area that most people do not understand



pconsidine said:


> It thus appears that insofar as fund-based pensions are concerned (i.e. Most private pensions), the pension company is liable for the levy, and unless the company has specific authority under the terms of its contract with the investor, it cannot compensate itself for the levy by making the investor pay..


Untrue. 



pconsidine said:


> I notice that some of the pension companies have had the affrontry to deduct this value from investors intitlements ahead of the designated date.


Can you back that statement up with a real example? I am not aware of any company that deducted the levy before the 30/06/2011



pconsidine said:


> But what really p.....es me off is the whining of the pensions industry over this levy. I didn't notice much contrition when their world beating fees and world-beating underperformance resulted in a destruction of pension wealth many multiples of the 0.6% they are so outraged about!.


Can you give examples of where Irish pension funds have higher than average charges than the EU norm or is this just your opinion again rather than actual fact? Again you seem to have little understanding of what funds options are available in a pension. Indexed Funds track an index of shares so fund managers have no control of the performance. Majority of pensions have single premium deposit options and all pensions have cash holding funds used for a tempory safe haven. Managed funds however rarely beat the index that they are tracking and so offer poor value due to higher management charges 


pconsidine said:


> Perhaps, as an act of contrition for the lousy value they have given to investors in their rotten products in recent years they might volunteer to pay the levy out of their handsome fees and charges - and before someone brings the issue of who exactly is chargeable for this levy before the courts of law.


Would be nice but will never happen. In reality pension's have a very low profit margin for the pension companies, just look at the online discount brokers which are charging as little as 0.75% AMC. Most of the group schemes that I have put in place over the years have 0.65% AMC. If the company that I have placed group schemes with absorbed the pension levy, they would only have 0.05% AMC

pconsidine would you like to reply to the above as I feel that you have ignored some of my previous comments and posts in other threads? I think that it would be only fair if you replied in the interest of a balanced debate!


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## pconsidine (23 Sep 2011)

"Indexed funds track an index of shares so fund managers have no control over the performance"

This single statement is the most devastating demolition of the pensions racket I have yet encountered. Well done. I agree wholeheartedly. So why, if they haven't any control over the performance of these funds, do they charge fees for doing what a monkey sticking a pin into the financial times could do just as well? (In fact a monkey would have done better than the geniuses who lost more than 30% of my pension during a period the market as a whole dropped only 25%!)

Incidentally, I don't agree with your assumption that the mugs who have already been burned by under-performing pensions are legally liable for this levy. I believe that if the matter goes to the courts the determining factor will be the de-facto ownership and control of the fund to be levied.

As one of the aforesaid mugs who paid 3-4% up front, plus 1% per annum to the Likes of Irish Life for the honour of losing my money I fail to see how Irish Life would be unable to absorb this 0.6%. Unfortunately, what pensions industry people like you fail to understand is that most of us small-time pension consumers have pensions with people like Irish Life. By the way, I haven't a clue what an AMC is. Nor, as a consumer, should I have to care. To illustrate my point: I selected Irish Life's cash fund because I thought my money would be kept in cash and my capital would be secure. After they took 3.5% off the top I discovered that "cash" isn't cash at all, but something called "cash-backed", and that the geniuses in Irish Life have managed to get a return of 0.6% on my money, and I have been advised that I have no hope of getting back to par by my chosen retirement date. Another jolly little practice of this industry is to state projected earnings which bear no relation to what analogous funds have actually earned in recent years. The literature with my "cash" fund posited year on year returns of 6%. In fact, I have learned that analogous funds managed by Irish Life have earned about 2% in the recent past. Why is this allowed by the regulatory authorities?

My only consolation is that there is now a stampede away from endowment pensions. This failed industry, which cannot see past its own self-interest, would like to blame the stampede on tax-relief and the levy. That is only part of the reason. Bad value, lack of transparancy, unsuitability to modern work and life patterns, and lack of trust in an industry that seems to use words like cash to mean something entirely different to what ordinary folk understand, are more significant reasons.

We now need root and branch reform of the industry. Ordinary people need to be able to put their pensions into simple dirt-exempt, fee-exempt, interest-bearing savings accounts with the same tax benefits as pensions-industry products, but without the risks, lack of transparancy, and unreliability. Sure, they would have to accept modest returns and the risk of inflationary losses. However, inflation erodes all products - but not as surely as fees and charges - and the depradations of the hapless fund-managers who haven't managed to outperform deposit returns in a decade.

One great benefit of having this alternative would be to introduce proper choice and competition into the sector, and force the industry to justify its fees and charges. On the evidence of the last decade, it can't.


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## DerKaiser (23 Sep 2011)

pconsidine said:


> So why, if they haven't any control over the performance of these funds, do they charge fees for doing what a monkey sticking a pin into the financial times could do just as well?



Investment management costs only make up a minority of the expenses incurred by pension providers. In order to run the business there are far more significant costs that have to be covered such as complying with regulations, submitting companies accounts, IT costs of the administration systems, admin costs of collecting and paying out money, admin costs of dealing with customer queries, broker commissions, etc.




pconsidine said:


> I fail to see how Irish Life would be unable to absorb this 0.6%.



A simple illustration might clarify. Say Irish life have €30bn of funds under management that generate €300m of fees and a cost base of €250m to cover all the items above, their net profit is €50m. They could ill afford to support €180m of levy out of this.





pconsidine said:


> By the way, I haven't a clue what an AMC is. Nor, as a consumer, should I have to care.



annual management charge - the 1% charge you refer to



pconsidine said:


> The literature with my "cash" fund posited year on year returns of 6%. In fact, I have learned that analogous funds managed by Irish Life have earned about 2% in the recent past. Why is this allowed by the regulatory authorities?



You should complain - I know of other providers who ensure that cash type funds are projected at no more than 3% gross investment returns




pconsidine said:


> Ordinary people need to be able to put their pensions into simple dirt-exempt, fee-exempt, interest-bearing savings accounts with the same tax benefits as pensions-industry products, but without the risks, lack of transparancy, and unreliability. Sure, they would have to accept modest returns and the risk of inflationary losses. However, inflation erodes all products - but not as surely as fees and charges - and the depradations of the hapless fund-managers who haven't managed to outperform deposit returns in a decade.
> 
> One great benefit of having this alternative would be to introduce proper choice and competition into the sector, and force the industry to justify its fees and charges. On the evidence of the last decade, it can't.



I like your idea about a simple deposit account type pension.  There are a few things to bear in mind though.  

1) It would surely be preferable that your money is ringfenced (like a pension) rather than used as capital to generate risky returns (like bank deposits)

2) It would surely also be preferable that such deposits be similar to the same regulatory protections as pensions e.g. solvency.

3) You'd have to consider whether disclosure regulations such as charges and projected retirement incomes were to be supplied.

If any or all of the above applied, you might find that the deposit rates offered on such a product would be substantially lower than those in a simple savings account, possibly to the extent that the return might be no better than that currently available by investing in cash on existing pension products.


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## serotoninsid (23 Sep 2011)

I'm not up to speed with the mechanics & workings of pensions but wasn't there rumblings of a challenge being taken against this levy when it was first proposed? 
Latvia - who are also in bed with the IMF - had a proposed cut in pensions overturned by their constitutional court ( [broken link removed]).  Could the same not happen here??


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## Baracuda (24 Sep 2011)

> This single statement is the most devastating demolition of the pensions racket I have yet encountered. Well done. I agree wholeheartedly. So why, if they haven't any control over the performance of these funds, do they charge fees for doing what a monkey sticking a pin into the financial times could do just as well? (In fact a monkey would have done better than the geniuses who lost more than 30% of my pension during a period the market as a whole dropped only 25%!)


Of course there is cost in managing indexed funds as per DK's post. There is also trading costs and the tighter the tracking margin of the indexed fund the higher the trading cost's. Indexed funds have lower charges than managed funds as previously stated. I am at odds to know how you lost 30% of your pension fund as you have quite clearly stated in this thread that your "priority is maximum security" http://www.askaboutmoney.com/showthread.php?t=154624 Am I to assume that you have switched funds? May I also ask which fund that you refer to, that has droped by 30% and over what period did this happen? I would like to see if that statement can be backed up by fact (or is it just another sweeping statement based on your opnion?) That said it is quite possible.



> I selected Irish Life's cash fund because I thought my money would be kept in cash and my capital would be secure. After they took 3.5% off the top I discovered that "cash" isn't cash at all, but something called "cash-backed", and that the geniuses in Irish Life have managed to get a return of 0.6% on my money, and I have been advised that I have no hope of getting back to par by my chosen retirement date. Another jolly little practice of this industry is to state projected earnings which bear no relation to what analogous funds have actually earned in recent years. The literature with my "cash" fund posited year on year returns of 6%. In fact, I have learned that analogous funds managed by Irish Life have earned about 2% in the recent past. Why is this allowed by the regulatory authorities?


 If you were compare cash to a demand account and after listening to the "Money Doctor" on Today FM during the week 0.6% return would seem be the average that the banks are paying. However cash funds are invested with hundereds of banks throughout the world on a week by week basis to reduce risk, should one of those banks default.

 I would be really extreamly surprised if PTSB supplied you with a Statement of Reasonable Projection stating that it assumed an investment return of 6% for a cash fund. If it did I would encourage you to make a complaint to them and seek compensation for this breach of regulation as the regulator has strict rules on cash return projections, they must use a assumed rate of 3% return



> My only consolation is that there is now a stampede away from endowment pensions. This failed industry, which cannot see past its own self-interest, would like to blame the stampede on tax-relief and the levy.


You only have to look here on AAM to see that people are genuinely concerned about the pension levy and the possible reduction in tax relief and this is one of many reasons why people are considering stopping their pension contributions. The main reason's why people have stopped paying into their pension is because of reduced income and mass unemployment.


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## pconsidine (24 Sep 2011)

Hi, DerKaiser.

I have in fact formulated a submission detailing a proposal which answers all of your questions. This submission has been presented to the Minister by a Fine Gael Senator friend who has enthusiastically advocated its adoption.

I will give you the basics:
1. Everyone would be allowed maintain one pension deposit account (PDA)
2. The PDA would be the personal property of the account-holder.
3. Upon opening a PDA the account-holder would have to supply to the bank such information as required by the Revenue (PPS number, birth-cert, etc.). This information would be forwarded to the Revenue by the bank.
4. Legislation would require all licensed banks to provide PDAs.
5. Legislation would stipulate that the interest applying on PDAs could be no lower than the highest rate of interest applying on any term deposit up to and including 5 years on offer by the financial institution concerned (This would prevent banks offering a high initial "come on" rate and then degrading it). The same rule would apply to transaction-charges. Management fees etc. would be prohibited (Being cash, there is nothing to "manage" anyway)
6. PDAs would be DIRT-free.
7. Money invested in PDAs would get the same tax relief as money invested in other pension products, and the same investment and other thresholds would apply.
8. Money invested in PDAs could be wholly or partially transferred to other pension products - but only to another PDA by closing the original PDA and transferring the entire amount to the new PDA. No one would be allowed more than one PDA at any time.
9. It would be illegal to take a PDA as security, and PDAs would be exempt from the bankers lien.
10. At the end of each tax year the bank would send a statement of each PDA to the Revenue, and the Revenue would send to the account-holder and bank a statement of tax (DIRT and income tax) avoided.
11. The PDA, upon the chosen retirement date, would have to be applied in the same way as any other pension fund.
12. The PDA could not be accessed before the age of 60. However, there would be a declining scale of penalties between the ages of 60 and 65 to encourage later retirement (Say 5% at 60. 4% at 61 etc.)
13. To facilitate emergencies, account-holders would be able to take their money out before the age of 60 by paying the accumulated tax forgone, plus a 5% penalty. This would be withheld by the bank and forwarded to the Revenue.
14. There would be merit in allowing credit Unions that fulfilled certain criteria to offer PDAs.
15. PDAs would be guarranteed to their full value by a Government guarrantee (I presume that at some time in the future normal deposit guarrantees will be reinstated).

Best regards.

PC


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## DerKaiser (24 Sep 2011)

A lot of good points there - I'd agree 100% with about 10 or 12 of them.

Just a couple of observations



pconsidine said:


> 5. Legislation would stipulate that the interest applying on PDAs could be no lower than the highest rate of interest applying on any term deposit up to and including 5 years on offer by the financial institution concerned (This would prevent banks offering a high initial "come on" rate and then degrading it). The same rule would apply to transaction-charges. Management fees etc. would be prohibited (Being cash, there is nothing to "manage" anyway)



The banks might be reluctant to abide by this and as a result might be deterred from having a product offering. Would it be necessary if there was enough competition?

As an aside, cash does have to be managed to an extent (though there should be very low costs involved). If your actual cash physically sits in safe deposit box you'll have to be happy with a 0% return. If you want a higher return you'll have to accept that the bank puts your deposit to use in some way, effectively "lending" it to get a return. This "lending" would preferably be to as secure a creditor as possible e.g. medium to long term German Government bonds (depending on your term to retirement).




pconsidine said:


> PDAs would be guarranteed to their full value by a Government guarrantee (I presume that at some time in the future normal deposit guarrantees will be reinstated).



The government guarantee is currently a lot weaker security than you'd get from an AA rated pension provider. 

We need to compare like with like in terms of security i.e. a deposit in an irish bank guaranteed by the irish government is a lot riskier than an investment in AAA rate government bonds via an AA rated company.


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## DerKaiser (24 Sep 2011)

pconsidine said:


> After they took 3.5% off the top I discovered that "cash" isn't cash at all, but something called "cash-backed", and that the geniuses in Irish Life have managed to get a return of 0.6% on my money



This cash is probably backed by short term liquid investments.  If you're not retiring for a while you'd do well to invested in a longer safe fund e.g. longer dated German or French govt fixed interest.

Unfortunately you won't do much better than a 0.5% return on shorter dated german bonds at the moment and will only get 2% returns on much longer dated ones.  That's the reality of where safe eurozone returns are at and is the yardstick of a genuine safe return as opposed to the deposit rates in AIB or BOI which involve an element of risk taking to generate the higher return.


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## Baracuda (24 Sep 2011)

Pretty much all of these proposals have been submitted to government and has been rejected over the years so there is nothing new here. Sounds like a great idea but when you get into the mechanics of how this could be put together from a compliance point of view it would cost as much as having a pension deposit self invested fund.

IF as you propose that this would be a cash fund the bank would not be able to use it to give out loans so how would it be able to fund the highest available interest rate?  I would also think that both government and the public would like to move away from bank guarantee's, so this cash fund would have a higher risk rating than what life companies cash funds have, indeed I would think that this would be a very high risk strategy presuming that our future governments learn from the mistakes that were made in 2008


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## pconsidine (24 Sep 2011)

1. As far as the banks would be concerned these would have no more, nor any less of these costs than any other term deposit accounts. The interest rates to consumers on deposits are net of these costs. PDAs would thus be no more and no less profitable than any other term deposits - save that they wouldn't have the option of degrading the returns. In any case the banks would have to be compelled to provide these products because they would displace other more profitable products and bring competition into the pensions market.

2. I accept fully what you say about the government deposit guarrantee.


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## pconsidine (24 Sep 2011)

To Barracuda.

1. I agree that the banks have resisted similar proposals before. This is understandable. The products currently on offer by the banks provide guarranteed fees and charges while the investor takes 100% of the risk. There is no question that the banks will have to be compelled to offer a product that would be in competition with the present endowment products.

2. It might be that PDAs would have to be opened at least 10 years before retirement. However, your objections could equally be made against any existing deposit product. I presume that the rates on offer have already factored in these matters.


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## DerKaiser (24 Sep 2011)

pconsidine said:


> In any case the banks would have to be compelled to provide these products because they would displace other more profitable products and bring competition into the pensions market



So your plan is to force the banks to provide this service even if they cannot make a profit?

Do you have any similar feelings on other industries where customers might be paying over the odds for the services they receive?  Maybe shut down all restaurants and force the pubs to offer steak dinners for €10 a head?


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## pconsidine (1 Oct 2011)

These PDAs would be no more nor any less profitable for the banks than any other deposit account. I would presume that the banks wouldn't be offering interest-bearing deposit accounts if they were unprofitable. In fact, they are mad keen to get in deposits.

The banks would be perfectly free to offer whatever rate they would consider viable in the circumstances - subject to the condition I postulated to ensure competition and to protect against degrading the interest rate relative to other deposit products on offer by the bank. The banks would have to rebalance their products and rates with regard to these requirements. But at the end of the day the most competitive institutions would be able to offer the best rates.

The reason why compulsion would be necessary is not because they would be unprofitable but because the banks would be concerned that these products might displace much more lucrative (for the banks) pension products. Mind you, if the current pensions products are as wonderful as the pensions industry tells us in their advertising, and are worth all the fees and charges, the banks would have little to fear from being forced to provide these products.

Finally, the banks are forced to comply with all sorts of rules and provisos that they hate because they erode profitability. Tough on them. They are not private institutions with private rights any more. We own or effectively control most of them anyway and they will just have to get used to doing what they are told rather than being run on the assumption that, after the taxpayer has repaid all their debts, the banks will be handed back to their managements, and normal service - massive bonuses etc. will resume.

Perhaps a better idea would be to forget the banks altogether and allow credit unions that fulfilled certain capital and liquidity requirements to offer PDAs. They (and their members) would jump at the opportunity.


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## DerKaiser (2 Oct 2011)

pconsidine said:


> Perhaps a better idea would be to forget the banks altogether and allow credit unions that fulfilled certain capital and liquidity requirements to offer PDAs....



For someone who's made a submission to a minister, you seem to be just chopping, changing & making this up as you go along.

How do you expect to be engaged with on a serious level when you start contradicting your own plan on a whim?


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## pconsidine (6 Oct 2011)

I am not contradicting my own plan. The submission to the minister was that the banks would provide these accounts.

However, the suggestion about the credit unions was posited in response to the issues you raised (that the banks might not wish to provide PDAs). It was obviously made in this context. Your apparant inability to discern this rather obvious fact would lead one to question whether YOU are capable of engaging in debate at any level.

Your point is seriously silly.


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## DerKaiser (7 Oct 2011)

pconsidine said:


> I am not contradicting my own plan. The submission to the minister was that the banks would provide these accounts.
> 
> However, the suggestion about the credit unions was posited in response to the issues you raised (that the banks might not wish to provide PDAs). It was obviously made in this context. Your apparant inability to discern this rather obvious fact would lead one to question whether YOU are capable of engaging in debate at any level.
> 
> Your point is seriously silly.


 
I'm disagreeing with you on a couple of points:

1) Even a straightforward deposit based pension will have some additional administration costs compared to regular deposits. It's hard to see how a bank, credit union or anyone else would be interested in offerings restricted as you describe i.e. limiting margins to their least profitable existing product whilst incurring higher administration costs.

2) Let banks, credit unions _and_ pension providers compete in a free market rather than compelling some of them to make offerings on certain terms and excluding others.

3) The banks _and_ the credit unions have a poor record on solvency.  

http://www.irishexaminer.com/ireland/credit-unions-to-get-1bn-bailout-169950.html


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