# Fair Deal - Treatment of Pension Fund?



## Gordon Gekko (4 Nov 2020)

Hi,

Within the Fair Deal scheme, how is a pension fund treated? i.e. one that hasn’t been accessed.

And how is an Approved Retirement Fund (ARF) treated? Does the 4% mandatory distribution counts as income with the fund itself ignored?

Many thanks,

Gordon


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## AAAContributor (4 Nov 2020)

Potential info on your second question here:









						Home economics: Our property finance expert answers your questions
					

Q My father is going into a nursing home probably early next year, which the family is currently researching. We are trying to work out whether to do this via Fair Deal, but we are confused about the details of his contribution. His income from the State Contributory pension and an ARF (approved...




					www.independent.ie


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## Sarenco (4 Nov 2020)

Hi Gordon

When we discussed this previously, the conclusion seemed to be that an ARF is treated as an assessable asset and drawdowns are treated as assessable income.  





						ARF v Annuity......Fair Deal implications
					

Is there any research available in relation to the Fair Deal implications of the ARF v. Pension decision?



					www.askaboutmoney.com
				



In other words, it's double counted and it may be better to purchase an annuity if somebody is going to avail of the fair deal scheme.


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## RoseMc (4 Nov 2020)

I think the questions asked at the end of the thread quoted by Sarenco (post no. 28) have not been answered. Hard to understand what the precise position is without knowing the answers to these questions.

I would have little faith in Sinead Ryan's article - some of the comments are clearly nonsense.


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## Gordon Gekko (4 Nov 2020)

Many thanks All.


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## Gordon Gekko (4 Nov 2020)

Am I oversimplifying it to think as follows:

- Say a nursing home costs €60k a year
- The net cost to the person is €36k a year after tax relief
- It makes no sense to consider Fair Deal if 7.5% of your assets until death plus 7.5% of your home for three years plus 80% of your income is a “big number”.


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## NoRegretsCoyote (4 Nov 2020)

@Gordon Gekko 

Are you talking about paying out of your own pocket for a relative?


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## Gordon Gekko (4 Nov 2020)

NoRegretsCoyote said:


> @Gordon Gekko
> 
> Are you talking about paying out of your own pocket for a relative?



No, sorry, I’m just trying to get my head around it


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## Slim (4 Nov 2020)

Gordon Gekko said:


> Am I oversimplifying it to think as follows:
> 
> - Say a nursing home costs €60k a year
> - The net cost to the person is €36k a year after tax relief
> - It makes no sense to consider Fair Deal if 7.5% of your assets until death plus 7.5% of your home for three years plus 80% of your income is a “big number”.


Nobody pays more than the actual cost of the nursing home care. The benefit of applying for FD anyway is that the 3 year limit on PPR commences at that time.
Also, ARF will be assessed at 7.5% p.a. Drawdown assessed as income, i.e. 80% recouped. The ARF will then be less for following year's assessment.


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## _OkGo_ (5 Nov 2020)

Gordon Gekko said:


> Am I oversimplifying it to think as follows:
> 
> - Say a nursing home costs €60k a year
> - The net cost to the person is €36k a year after tax relief



You may have oversimplified it a little but more or less that is correct. However the relief is at your rate of IT so unless all of that 60k is in the 40% tax bracket then the net cost will be a bit higher. And probably more important but missed by many is that the tax relief is available to *whoever* pays the nursing home fees, not the person receiving care. So it could be a child, sibling, spouse, friend...anyone 

Another thing to bear in mind is that the amount that is calculated from the assessment is still subject to the same tax relief. If it is assessed that you can pay 50k, the state will cover the remainder and you or whoever pays can claim tax relief on the 50k. After 3 years when the PPR is excluded, this would get better. And the financial assessment can be done at 12 month intervals which would make sense if the ARF is reducing significantly

The ARF is a peculiar one but it does make some sense. The asset should be assessed as it will eventually form part of your estate unlike an annuity. The distribution is then assessed as income so you are effectively taking an 11.5% hit on the ARF (7.5% asset + 80% of 5% distribution).

If you have choice between annuity and ARF, I still think it would make more sense (for your estate) to choose the ARF. Realistically with life expectancies, it is likely that there will be something left over in your estate from the ARF. Choosing an annuity that will only pay ~3% for a few years will reduce the assessable income but you are just handing away the rest of the pension pot

This calculator MyFairDeal seems to give a reasonable indication of what you can avail of. There are a few accountants/advisors around the country who seem to specialize in the FDS so it is probably worth your while paying a small fee to get the best and most relevant advice on this


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## twofor1 (5 Nov 2020)

Gordon Gekko said:


> - Say a nursing home costs €60k a year
> - The net cost to the person is €36k a year after tax relief
> - It makes no sense to consider Fair Deal if 7.5% of your assets until death plus 7.5% of your home for three years plus 80% of your income is a “big number”.


If Fair Deal makes no sense in your case now, it might make sense in the future.

Apart from the basic nursing home cost, there are many additional expenses, most homes charge an additional activity fee, typically €70 weekly. There is also hairdressing, toiletries, clothes, shoes etc. Other possible expenses could be chiropody, physio, consultants, dental etc, none of which is covered. One of my relations went through 2 specialist chairs that cost nearly €5k each. If there is private health insurance, that could be another few grand a year.

Then there is the family home that in many cases sits there empty. It will have to be maintained, insured etc. Alarm monitoring, heating on for a few hours daily during winter to prevent burst pipes mould etc. Even with low usage standing charges make gas / electric bills significant. 

You won’t see the money go.

You can apply for Fair Deal at any time, and  nursing home care paid for privately will be allowed against the 3 year cap on the family home.

So say after 3 years of paying privately, savings might have reduced substantially and with the house being disregarded from the financial assessment, Fair Deal might make sense at that stage, or at some later stage again.

It is worth bearing in mind.


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## Zebedee (5 Nov 2020)

The last point above is an important one and one that people often miss.


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## Gordon Gekko (5 Nov 2020)

Thanks. For the avoidance of doubt, I’m not asking for myself or for a family member.

I’m just trying to get my head around it.

I guess the part I’m unclear about is the point at which it ceases to make sense for someone.

e.g. if someone’s retirement income is €100,000, their house is worth €1.5m, they’ve an ARF worth €1.5m, and savings/investments of €1m, surely they’re better off just paying the €36k themselves?


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## POC (5 Nov 2020)

Also a lot of Nursing homes have a cheaper rate if you're on the Fair Deal scheme. So even if you end up paying the full amount of the Fair Deal rate, you could save a couple of hundred a week compared to the full Private Price.


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## Slim (5 Nov 2020)

Gordon Gekko said:


> Thanks. For the avoidance of doubt, I’m not asking for myself or for a family member.
> 
> I’m just trying to get my head around it.
> 
> ...


Yes. At that level of income,  FD is unlikely to be of any value.


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## Gordon Gekko (5 Nov 2020)

Slim said:


> Yes. At that level of income,  FD is unlikely to be of any value.



Thanks.

But based on some earlier posts, I’m still unclear.

If the State just takes the cost of the care, does it really matter?

Say the person has €100k of pension income, they’ve a home worth €1m, and the care costs €60k a year.

Does the State just take the €60k?

i.e. not the full €80k (80%) or any of the value of the house?


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## huskerdu (6 Nov 2020)

Gordon Gekko said:


> Thanks.
> 
> But based on some earlier posts, I’m still unclear.
> 
> ...



Yes, the fair deal scheme pays the difference between the cost and the assessment of what you can afford. If you can pay the full cost,  the HSE does not pay anything or take anything from you


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## Slim (6 Nov 2020)

Gordon Gekko said:


> Thanks.
> 
> But based on some earlier posts, I’m still unclear.
> 
> ...


No, you pay the nursing home direct. FD will not come into it.


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## Gordon Gekko (6 Nov 2020)

Slim said:


> No, you pay the nursing home direct. FD will not come into it.



Okay, thanks


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## _OkGo_ (6 Nov 2020)

Hi Gordon, 

I think you may be overcomplicating it a bit. The state doesn't 'take' anything, they pay the difference between what you can afford (based on assessment) and what the cost of the care is. You can find the published costs here but it doesn't matter whether the home costs €60k or €80k, if you have been assessed as being able to afford €40k, then the state picks up the difference.

In your first example, that individual would simply be too wealthy to avail of the FDS because of both the high income and high assets.

In your second example, that individual would likely be entitled to some support after year 3 when the PPR is excluded.

The income assessed is *NET* income so even with a gross income of 100k you could still be eligible for some support through FDS. After tax and allowable expenses (health, medical, dependandts etc), your net income could be 50k. It is 80% of this number that is used for assessment, not 80% of your gross income.

I think your best bet is to actually go through and complete an  application form, they are not that difficult and once you've done it you will get a better understanding of how it works. Hope this helps


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## RoseMc (6 Nov 2020)

Hi OKGo

Do you know the answers to the questions that I referred to earlier? It would be great if you had time to go through these specifics as it will help to get to the bottom of this.


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## _OkGo_ (6 Nov 2020)

@RoseMc - Unfortunately I don't. My experience of the FDS was much more straight forward. It was an elderly relative where the income and assets were fairly modest and nothing as complicated as an ARF. 

Just my opinion but I think the ARF is straight forward to assess (ignoring the double counting) but much more difficult to fund the payment if the applicant does not have cash deposits to meet their payment
Asset: 500k @ 7.5% = €37.5k
Income: 500k @ 5% = €25k + €13k (State Pension) = €38k
Net income =~€31k
Net income after allowable deductions = €27k 
Assessed incomed = €27k @ 80% = €21.5k

Ignoring any PPR, in my example the assessable amount would be €37.5 + €21.5 = €59k

But I can see the difficulty in trying to fund this without any cash assets. It means you need to drawdown a much larger portion of the ARF which then adds to your income. I have no idea how FDS deals with that scenario


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## RoseMc (6 Nov 2020)

Thanks very much, OKGo

Your candour is genuinely impressive - so many people on internet boards like to bluff and prevaricate when uncertain about things. Very refreshing to read a post from someone who clearly knows a lot about a subject yet is able to admit the limit of his/her knowledge. 

My understanding is the Gordon is a financial specialist so he also is trying to get to to the bottom of this. It must be said that there have been a lot of valuable contributions on this thread.


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## Purple (11 Nov 2020)

How are DB Pensions, from a value point of view, treated in the assessment?


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## RoseMc (11 Nov 2020)

The tax treatment is designed by those with prospectively significant DB pensions. How do you think such _matching_ assets are treated?


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## Purple (16 Nov 2020)

RoseMc said:


> The tax treatment is designed by those with prospectively significant DB pensions. How do you think such _matching_ assets are treated?


I think that the permanent government, the civil service, will do what they usually do and rule in their own interests but I'm interested in the specifics.


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## NoRegretsCoyote (16 Nov 2020)

Purple said:


> How are DB Pensions, from a value point of view, treated in the assessment?



It's not relevant. 80% of your DB pension is taken by the HSE until your death as it is assessable income. After that a DB pension has no value.


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## Purple (16 Nov 2020)

NoRegretsCoyote said:


> It's not relevant. 80% of your DB pension is taken by the HSE until your death as it is assessable income. After that a DB pension has no value.


Okay, so 80% is taken by the HSE. That's what I was trying to find out. 
Does that apply if there is a dependant with no other income?


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## NoRegretsCoyote (16 Nov 2020)

Purple said:


> Does that apply if there is a dependant with no other income?



It is 40% of a couple's income.

TBH the system seems much _more _favourable to the estate planning of someone with an ARF than a public servant with a DB pension.

It is unlikely that 7.5% pa of an ARF will see it exhausted before you die.


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## Sarenco (16 Nov 2020)

NoRegretsCoyote said:


> TBH the system seems much _more _favourable to the estate planning of someone with an ARF than a public servant with a DC pension.


Surely the opposite is the case if an ARF is treated as an assessable asset and drawdowns are treated as assessable income.


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## NoRegretsCoyote (16 Nov 2020)

Sarenco said:


> Surely the opposite is the case if an ARF is treated as an assessable asset and drawdowns are treated as assessable income.



Apologies, typo above. I meant a public servant with *DB *pension, not DC.


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## Joey99 (25 Mar 2021)

I know this thread is a little stale but I got a meaningful clarification from HSE yesterday which I wanted to share. We are looking at a situation similar to the OP. ARF and wondering if money taken from the ARF would be counted as income (which would effectively mean a fairly punitive double charge situation). Here is an extract from the HSE response:



> *
> Approved Retirement Funds and the NHSS Financial Assessment*
> _
> 1. An ARF is assessed as a cash asset. The encashment / surrender value of the Approved Retirement Fund at date of application is assessed as a cash asset, in line with Schedule 1 of the Nursing Homes Support Scheme Act 2009 (as amended).
> ...




We will still need to apply every year to reduce the amount payable from the ARF to reflect the money taken out during the previous year (unless we can agree something sensible with them at the outset whereby payments reduce over time to reflect the 7.5% reduction in fund value). 

What is particularly encouraging is that HSE recognise that the tax payable on withdrawals from the ARF can be set against other income (in this case the contributory state pension) so those taxes will reduce the amount that is payable to the HSE out of that income (on the usual 80:20 basis). 

Hope this helps someone. I've asked HSE to update their generally available guidance because I could not find any information along these lines after weeks of research and it shouldn't be a state secret.


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## Joey99 (25 Mar 2021)

Sarenco said:


> Surely the opposite is the case if an ARF is treated as an assessable asset and drawdowns are treated as assessable income.


It seems HSE do not treat drawdowns as assessable income (see my most recent general post in this thread)


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## SGWidow (18 Apr 2021)

Joey99 said:


> Hope this helps someone. I've asked HSE to update their generally available guidance because I could not find any information along these lines after weeks of research and it shouldn't be a state secret.



That's a classic Joey99 - fair play.

Following on from your very helpful update of post #32, has anyone worked out at what ARF levels that FD no longer makes sense for a single person and/or couple?


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## Joey99 (19 Apr 2021)

SGWidow said:


> That's a classic Joey99 - fair play.
> 
> Following on from your very helpful update of post #32, has anyone worked out at what ARF levels that FD no longer makes sense for a single person and/or couple?


Seems like this would be a function of (a) the amount payable for your nursing home (it varies but the HSE rates are published and accessible on Citizens Information), (b) your assessable income, and (c) your assets. Once the 80% of income and 7.5% of assets exceeds the cost of your nursing home there would be no point availing of Fair Deal.


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## noproblem (19 Apr 2021)

Sister just mentioned to me that "something" is due before Goverment in the next week or two to address changes to the Fair Deal Scheme. Anyone have information on this?


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## Joey99 (19 Apr 2021)

noproblem said:


> Sister just mentioned to me that "something" is due before Goverment in the next week or two to address changes to the Fair Deal Scheme. Anyone have information on this?


I understand (perhaps among other tweaks) there is something going before Government to deal with the anomalous treatment of ARFs but I have no specific information beyond that


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## twofor1 (20 Apr 2021)

Legislation to ease the financial burden of the Fair Deal scheme on farmers will be brought before the Dáil within the next three months, the Junior Minister for Older People has pledged.

The change to the Nursing Home Support Scheme (NHSS) is to cap contributions based on farm and business assets at three years where a family successor commits to continuing the operation when the owner is in care.

Ms Butler said she also wants to give people the option of choosing between nursing homes and their own home in their later years.
The Waterford TD said she will be enacting a statutory home-care scheme which was commenced by her predecessor, Jim Daly.


https://www.independent.ie/business...-aims-to-ease-burden-on-farmers-39932632.html


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