# SSIA related Pension Incentive Tax Credit Scheme



## Killoscully (26 Apr 2006)

See e-brief from Revenue as regards the SSIA related Pension Incentive Tax Credit Scheme. It is not necessary to be on 20% tax rate but earnings for year previous to SSIA maturity must be under 50,000.

[broken link removed]


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## ClubMan (26 Apr 2006)

Anybody know if these changes mean that where a married couple are on joint/aggregated married taxation but one would otherwise qualify on their own that spouse can now avail of the incentive?


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## Killoscully (26 Apr 2006)

It appears that qualification will be on the basis of an individuals earnings in the qualifying year - P60 or suchlike.  Therefore a taxpayer earning under 50K should qualify notwithstanding the earnings of the spouse.


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## ClubMan (26 Apr 2006)

Thanks for the prompt reply. Might be a runner for her indoors so. We had dismissed it as a possibility based on the initial proposed rules but must check it out again so.


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## Conan (27 Apr 2006)

My understanding of the Act is that if you invest €7,500 from an SSIA and then seek to claim the €2,500 from the Govt, that you cannot also claim tax relief on the €7,500. 
If this is the case then for top rate tax payers it makes no sense, since you are giving up 42% PAYE +6% PRSI relief. So the total value of €10,000 has cost you €7,500 net, as opposed to investing €10,000 personally and claiming the 48% tax relief (a net cost of €5,200) 
Even for standard rate tax payers, the benefit of the SSIA pension incentive seems illusory. The €10,000 value still costs €7,500, whereas if the tax relief system was applied the net cost would be €7,400 (assuming 20% PAYE + 6% PRSI).

Am I mis-reading the Act (possible since it is so turgid).


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## ClubMan (27 Apr 2006)

They seem to have made this whole incentive scheme so complicated (even after the latest supposed simplifications) that there's a danger that people will not avail of it because they don't understand the ins and outs. I certainly don't at this stage... Maybe the obfuscation is a deliberate ploy?


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## F. Kruger (27 Apr 2006)

My understanding is that it will make perfect sense for homemaker to avail of the opportunity.

Also agree that it is suitable for the non tax payer *and *it may be an unbelievable deal for a non tax payer that is over the age of 60 and has no other pension benefit.

Invest your €7,500 and avail of the €2,500 bonus. *'Retire' *a few weeks/months later and take the lot tax free as it will be under the limit of (€20K?) before tax free cash, whereby you commute the lot as a lump sum.

Someone else might clarify this but unless the Revenue put in some other 'complication', I think that it will be possible and will also be an administrative nightmare for the product providers (but who will care, not I)


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## Killoscully (27 Apr 2006)

A tax credit is on offer - not free cash. The claimant will need to have taxable earnings to qualify. 

As outlined by Conan there is really no benifit to anyone (except the pension companies) unless the incentive is an "add-on" to the normal tax relief available on pension contributions.


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## ClubMan (27 Apr 2006)

Killoscully said:
			
		

> A tax credit is on offer - not free cash. The claimant will need to have taxable earnings to qualify.


Wrong - several tax credits already benefit those who don't pay tax. This is just another one. For example, _SSIA _top-up, private health insurance premiums tax relief at source, owner occupier mortgage interest relief at source etc.


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## Conan (27 Apr 2006)

F Kruger,
Not sure this is correct. 
If you invest €10,000 into a PRSA (say), having claimed the Tax Credit and then retire, you options are as follows (assuming no other pension benefits):

Take 25% tax free
Invest 75% into an Approved Retirement Fund/Approved Minimum Retirement Fund
I cannot see how you get all the fund back tax-free (what is your reference to €20k?)


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## Decieboy (27 Apr 2006)

I took out a government approved PRSA pension policy a few years back. Does anyone know if it is now possible to transfer my savings to the new SSIA related Pension Incentive Tax Credit Scheme? I appear to qualify under the criteria.

I attach an article in relation to the new scheme.

[broken link removed]


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## ClubMan (27 Apr 2006)

This incentive scheme is designed to encourage qualifying _SSIA _savers to shift some or all of their _SSIA _funds into a _PRSA_. I don't see how shifting an existing _PRSA_ into another one, as you seem to be suggesting,  is relevant or of benefit.


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## Decieboy (27 Apr 2006)

To avail of the tax credit of €1 for every €3 contributed?  Although I must examine the return I'm getting on the existing PRSA...


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## ClubMan (27 Apr 2006)

You can only get that by transferring _SSIA _funds to a _PRSA_. You seem to be suggesting transferring an existing _PRSA _to another one above. This will not qualify. Maybe I have misunderstood you or something?


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## Decieboy (27 Apr 2006)

Apologies for not making myself clear.  Can existing SSIA funds + existing PRSA funds be combined & transferred to new SSIA Tax Credit Scheme to avail of €1 for every €3 offer.  Or, as you said, maybe there is no benefit to this.


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## F. Kruger (27 Apr 2006)

Conan

There is regulation that governs 'trivial pensions' which, from my understanding, entitles the individual to a once off payment( subject to PAYE) if the remaining fund after the deduction of the tax-free lump sum (from all pension sources other than State Benefits) is €15K or less.

Is it not then technically possible for an individual/couple to have no tax liability on what would remain ( €7,500) after the tax free lump sum, assuming various tax credits, age, other income etc. being taken into account?

This is just something that I thought might be worth exploring ?


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## ClubMan (27 Apr 2006)

Decieboy said:
			
		

> Apologies for not making myself clear. Can existing SSIA funds + existing PRSA funds be combined & transferred to new SSIA Tax Credit Scheme to avail of €1 for every €3 offer. Or, as you said, maybe there is no benefit to this.


 Only transferred _SSIA _funds will qualify for the incentive. If you are availaing of this then there is no need to move your _PRSA _or open a new one. But you will not get any top-up for non _SSIA _funds.


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## Conan (27 Apr 2006)

F Kruger,
The Trivial Pension rules state that if the "total of all funds...following payment of the lump sum benefit is less than €15,000" then this can be paid as a "once-off pension". BUT this will be subject to tax.
Also this provision will only apply to PRSAs after the AMRF requirements have been met.
I like the way you are thinking, but the Revenue are ahead of you.


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## F. Kruger (27 Apr 2006)

Conan,

What about RACs? Do the ARF requirements have to be met for them?


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## kirvos (27 Apr 2006)

Hi all
Conan, That is my reading of the situation i.e no benefit for 20pc payers and a bad move for any 42pc payers to take up the €3 for €1 pension offer. I'm surprised to date nobody on financial/your money pages has written this up. HAve discussed with colleague Charlie Weston,in the Indo/Your Money, raising the 'anomaly' when he wrote the €50k angle yesterday.
We decided not to confuse the situation further, but on more mature reflection, I guess we will have a go at it soon - as the Dept of Finance is either confused, inept, obtuse, or just downright careless about misleading the public with wrong info. 
K


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## ClubMan (27 Apr 2006)

€3 for €1!? It gets better and better!


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## conor_mc (28 Apr 2006)

Would this be a good deal if one were already contributing max AVC to a pension, can this SSIA top-up be claimed also.

For example, for someone earning the max €50k who were contributing 15% to a pension already (let's assume that 15% is their max), they'd already be contributing €7,500 p.a. (15% of 50k).

Could they also put a further €7500 from the SSIA into their pension and avail of the €1-in-3 as well, as they're only availing of one tax relief on each 7.5k?


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## Resident (28 Apr 2006)

I believev Kruger is correct: if your total fund after the tax free lump sum is under 15000, you may be allowed to take the balance as a taxable lump sum under paye instead of having to amrf/annuity it. this is by revenue concession.

eg I have 18000 in PPP, at 60+ I retire take 4500 (25%) tfls. 
even if I havent funded an amrf with 63500 before or an annuity or a pension/annuitiy giving 12700pa, with revenue concession I don't have to amrf/annuity the remaining 13500 as it's under the 15k floor, but can take it as a lump sum subject to paye. 
Note, this is with revenue concession.


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## Conan (28 Apr 2006)

Guest,
My only disagreement with Kruger is that one cannot get the "lot" tax-free. The Trivial Pension provision still means you pay tax on the 75%. 
The Revenue rules state that you can avoid the ARF/AMRF rules "if due to the size of the fund you cannot establish an AMRF".

My overall point is this SSIA Incentive is only of any real value to non-tax payers (stay-at-home spouses etc). If you are paying tax at the top rate, you are better off claiming tax relief in the normal way. Even for Standard Rate tax payers, the SSIA Incentive is of little or no value.

So I find it hard to see how this will do anything to encourage more people to save for retirement. It's a three card trick.


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## Deano (28 Apr 2006)

To me this seems absolutly pointless. If you take the example of a 35 year old earning €45k in a work pension fund but not paying any AVC's. Whats the point in paying in a lump sum of €7,500 if all you get is €10,000 (a 25% incerase).

Surley it's a much better idea to max out your AVC contributions for a year (for example) and get tax and prsi relief. To put €10,000 into your pension would only then cost €5,200.

It doesn't take Eddie Hobbs to work this one out!!


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## Resident (28 Apr 2006)

if you're a non tax payer with an ssia coming in, it's an extra 2500 that you're not going to get anywhere else, as with revenue approval you wouldn't have to fund an amrf.

agree it doesn't do higher rate payers any good.

but if it helps the least well off elderly, I think their case deserves a look too.


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## senara (30 Apr 2006)

A couple,one of whom has no earnings(homemaker), are assessed jointly for tax and the marginal rate is 42%. The home maker transfers E7500  from her SSIA to a PRSA. 
What  tax rate will apply to a withdrawal of E10000(=7500+2500 Gov top-up) from the PRSA FUND?


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## Hesadub (1 May 2006)

Conor Mc; 
Good point; If your pension contributions are already maxed out for tax relief, then this SSIA Incentive Scheme appears to allow you to up your fund by another 10k while still getting some benefit from the Exchequer.

For example a person approaching retirement age with an under-funded pension might find this attractive. Tax relief is allowable, I think, up to 50% of earnings if you're over 60. If you're belatedly trying to cram your pension fund, this seems a worthwhile option, but only after you've used your full tax relief entitlement.


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## Bramble (10 Jul 2006)

Conan said:
			
		

> If this is the case then for top rate tax payers it makes no sense, since you are giving up 42% PAYE +6% PRSI relief. So the total value of €10,000 has cost you €7,500 net, as opposed to investing €10,000 personally and claiming the 48% tax relief (a net cost of €5,200)


 
I'm trying to figure this one out... I have a company pension but as I haven't paid in any AVCs so far was thinking of topping up with my SSIA. I'm in the top tax bracket... so sounds like I'd be better off starting to pay regular payments into an AVC rather than making a one-off payment with my SSIA - correct??


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## Guest126 (11 Jul 2006)

Hi Bramble

You are correct - paying the AVC and getting income tax relief would be the best bet for you.

The Government Incentive Route would be the best route for someone that is already maxing their AVC OR someone that pays no income tax OR (debatable) someone paying income tax at the basic rate of tax.


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## F. Kruger (29 Sep 2006)

New Law to Stop SSIA Pension Abuse

[broken link removed]


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