# complex question in light of Budget €60k cap



## Starbuck (6 Dec 2012)

Hi Liam, can I ask you about my own situation?

I'm in a DBS (but not a Banker!). I was a PAYE earner. 
I contributed to the scheme for 30 years and took Voluntary Redundancy in 2010. I'm not yet Pensionable - deferred until August 2014.
I am no longer Resident in Ireland (or the EU) for Tax purposes - I had to move abroad for work.

A few weeks ago some members of the scheme circulated a letter about rumoured changes to the SFT. Their letter painted a very depressing picture for anyone not yet Pensioned. They included a formula which went something like this;

((80K X 25) - 1.5M) X.41 = 205,000

80K is the Pension I'd be expecting normally.
25 is the 'new multiplier' they were expecting.
1.5M is the SFT
and .41 is the Marginal Tax Rate.
The 205K figure that produces is the BACK TAX we were told to expect, and that it would be applied to us UP FRONT on reaching Pension age!
There is no way I have that kind of money, and no way to borrow it. I had to sign away the right to a Tax Free Lump Sum on leaving.
There was the hint the Pension Scheme would pay it and 'come to some arrangement' with Pensioners to repay it. But the scheme is in deficit (aren't they all) and I'm not sure thats realistic.
If it was to be done the hint was a 10 year repayment schedule. That would probably mean the Pension will be reduced from 80K to 60K for 10 years (20K p.a. in tax payments).
The problem for me is that after paying the usual tax on that, the ex's share, and the neg equity mortgage - there'll be nothing left to live on.

Are these sums correct?

I notice a mention of the changes being due in Jan 2014 - I'm deferred until August. So I get whacked while others will slip under the wire, right?

What I find truly unfair about this is the retrospective nature of the Tax. The Irish State offerred Tax Incentives to people to save for retirement. We would probably have made completely different plans if the tax incentives weren't there. But we made all our plans around the figures promised by this scheme. For the Government to now effectively ask for us to repay 30 years of tax relief back overnight (in a lump sum) is nothing but theft, or (to put it in 'Parliamentary Language') confiscation!

Is it really legal?
Is this all a misunderstanding by some members? Because, by my reading of the Budget, Mr.Noonan has done exactly what was rumoured, and this will mean I'll be broke in my retirement.


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## pierboy (6 Dec 2012)

You should be ok as based on previous experience they are likely to allow people hold onto the pension they have already earned when limits are reduced - this is called a Personal Fund Treshold. You will have to apply for this at some point in the future - yours will be for a pension of 80K. The Standard Fund Treshold will be a pension of 60K - those unfortunates who haven't accrued this amount to date will be restricted to this.


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## Starbuck (6 Dec 2012)

Hi Perboy. Your interpretation would seem the fairest way. But are you sure? 
I'm told that a few deferred colleagues who were Pensioned recently (pre Budget) were told they were over the existing SFT and were presented with a substantial Tax Bill on Pension day. A joke really, since the fund is in deficit and their 'personal pension pot' is a fiction - the numbers are all notional! We don't own the pot as individual members! Pensioners are effectively subsidized by current members.

Anyhow, the policy seems to be applied retrospectively already.
The changes in the a budget just make that tax bill bigger!

At least those who haven't yet reached the 60k threshold can plan on reducing their Pension Contributions to suit and put any freed money into other investments - rather than finding themselves in the situation of putting in maximum Pension contributions all their lives, concentrating their savings into that vehicle rather than diversifying into other investments, only then to have the Pension statutorily reduced to 60K, and a Tax Bill to get it.


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## Conan (6 Dec 2012)

If your pension is due to be €80 k then the notional value for pension cap purposes will be €1.6 m based on current rules ( 20 x 80,000). If the cap is reduced then current members with an accrued pension of over €80,000 will be entitled to apply for a Personal Fund Threshold of the higher amount. 
Starbucks, based upon what you outline, I would be surprised if you we're impacted and liable to any additional tax liability ( unless of course your deferred pension was increased after getting any PFT.
The Budget speech referred to capping the tax relief on contributions generating a pension of over €60k. Whether that is the same as capping pensions at €60k is a moot point. Time will tell.


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## Starbuck (7 Dec 2012)

Conan, now that you mention it I believe there was some form of 'Index Linking' forced on the scheme in the last few years. The scheme was no longer able to fund CPI increases, and they had been stopped in an effort to keep the fund afloat. But a change in the law forced the reintroduction of index linked increases. It sometimes seems the Government is doing its best to break these DBS schemes.

Anyhow, these indexed increases pushed the notional value of the pensions above the SFT for some of my better paid colleagues and on reaching pensionable age they got a retrospective tax bill. The government giving with one hand, and taking with the other, and the only net result is the further weakening of the Pension Scheme.

So how and when do I apply for an PFT?


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## Conan (7 Dec 2012)

Starbuck,
I don't follow your story. If your expected pension is €80k then you don't currently have an issue. Currently the capital value of your pension is €1.6m - 80,000 x20. So it is below the current cap of €2.3m. If on the other hand the cap was reduced to say €1.5m or the cap was €60,000 in pension terms then at that stage you would apply for a PFT.
I don't understand how your better paid colleagues got a "retrospective" tax bill. If their capital value was above the €2.3m when the cap was reduced to €2.3m then they would have applied for a PFT at that stage. The only way that any tax bill would have arisen at retirement would be if their pension or deferred pension increased subsequent to getting a PFT. A change in the post retirement indexation basis would not have impacted the pension capital value.


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## Starbuck (10 Dec 2012)

Thanks Conan. As I understand it some Management guys were over the 2.3M threshold and (according to my meager info) the Scheme 'paid tax bills for them' of around 30K each on their retirement. I assume their pensions were adjusted to repay this money if they couldn't afford it themselves.
I have no idea if they applied for a PFT, but if it were that simple then surely they must have? Why didn't they get it? I've no idea how easy or hard that is.

The letter circulated to me forecast that kind of reduction in SFT you mentioned - the figure was expected to be 1.5M.
It appears that hasn't occurred (yet, has it?) but it might later  - if you're a pessimist.
On the other hand, the 60K cap seems to perform the same function as the 1.5M SFT would meantime! Am I right?


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## Conan (10 Dec 2012)

If members had accrued or deferred benefits in excess of €2.3m when the cap was reduced to €2.3m, then they would have plied for a PFT at that stage. If however their benefit was say below €2.3 m in Dec 2010 but subsequently rose above it then they would be liable for a tax bill on retirement. If this bill was paid by the Sheme, then presumably they reduced their pension payments by the pension equivalent of the tax bill.
The Budget did not reduce the €2.3 m but that could still happen from 2014. If it does, then anybody with a capitalised value over the new lower cap would apply for a PFT equal to their particular value. On previous experience, the process is fairly straightforward.


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## Starbuck (11 Dec 2012)

Ok, you've answered my question thanks. But I just don't understand why they still got tax bills if a PFT is that easy. And why would the Taxman easily agree to an increased PFT when it will do him out of revenue? How far could this go? I mean, if someone had a pot of 5M would Revenue double his PFT? Isn't the SFT a fiction then? Why have one?


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## Starbuck (23 May 2013)

Hi Conan. I finally found out where to contact in Revenue about applying for an increased PFT as you suggested above.
They have informed me that there is no provision for anyone to apply for an increased PFT as you suggest. So that was duff gen I'm afraid.
I thought it was too good to be true, and indeed it is.
Six figure tax bill coming my way before I can claim my pension. Bloody outrageous.


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## Azriel (23 May 2013)

You are not currently impacted (your benefits are below the current limits)....hence you cannot currently apply for a PFT. Based on past practice - the limits have been reduced twice before - where the limits reduce and you are at that point impacted, you would at that point apply for 'protection' i.e. a PFT.

As Conan notes, this is assuming no change in process, but the starting position would not be a six figure tax bill - this would be out of line with previous practice.


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## Starbuck (23 May 2013)

That may be true for me, but what about my colleagues on a higher pay scale who are now pushed above the PFT by the Revenue forcing Schemes to pay them Cost Of Living increases? They requested their PFT's based on their then expected Benefit, which was already over the SFT.
Now the fund has been forced by the Government to increase the Benefit (even though it can't afford it) and the figure the deferred guys had based the PFT on is now too low! They find themselves pushed over their PFT by the COL increases (ironically!) which will cost them a packet in Tax on reaching retirement age. Estimates range around 75K. Like me they are ineligible for commutation, so no lump sum.
The fund can't afford to pay the tax - not even over the 10 year window allowed.


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## Azriel (26 May 2013)

PFT should have been determined based on accrued benefits as at December 2010 (and not prospective salary!).

COL increases do have the potential to push accrued benefits above the limits, but that is all assuming that you draw the benefits at Normal Retirement Age in pension form...

You are describing an unusual scheme - can't pay the tax, but happy to grant COL increases (and 'forced' to by Revenue...?)


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## Micfle (13 Jun 2013)

*Pension Transfer*

Hi Starbuck,
Considering you are no longer resident in Ireland have you not considered moving 
your fund internationally where by you may be able to obtain better tax rates and or receive your pension gross.
Some funds are eager to be rid of liabilities so at least explore the transfer value of your fund.


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