# Should people be allowed draw down their pension at 50?



## RainyDay (6 Jan 2014)

Thanks for the clarification, Liam.

It grates more than a little that someone can benefit significantly from pension tax relief to build up their fund, and can then draw down this fund from 50 years old. I don't believe that this is the intended purpose of the tax relief.


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## LDFerguson (6 Jan 2014)

RainyDay said:


> It grates more than a little that someone can benefit significantly from pension tax relief to build up their fund, and can then draw down this fund from 50 years old. I don't believe that this is the intended purpose of the tax relief.


 
I don't see the issue.  Whether you retire at 50, 60, or 68 the tax position in relation to your pension is the same.  You can take part of your fund as a tax-free lump sum and the rest is used in some way (annuity or ARF/AMRF) to provide you with a pension.  

In some cases the tax-free lump sum is reduced by taking early retirement, meaning that you may pay more tax on the remaining fund.  

The "pension" element of your pension will be subject to tax at your marginal rate as well as the USC.  So if your pension income is low you may be tax-exempt.  Or some of it may be taxed at 20%.  If you're in the fortunate position that your pension (plus any other taxable income you may have) is big enough to push you into the high rate of tax, then you'll pay 41% tax on your pension plus the USC.  

If you retire at 50 from a previous pension scheme but are still working in a new job, then it's likely that your combined income (pension + earned) could well be taxed at 41% meaning that you're paying tax at 41% on your pension.

All of this is the same regardless of what age you retire at, so I'm curious to know why you feel that the early retirement provisions are against the spirit of retirement funding.


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## RainyDay (6 Jan 2014)

Liam, my concern is not about the tax treatment of income after retirement. My concern is about the scope of abuse and tax avoidance, where a scheme that is intended to help people plan for retirement becomes a scheme that allows people to avoid tax - particularly people who are wealthy enough to engage professional advice to help them down the avoidance road. Also, it is a scheme that is particularly open to wealthy self-employed professionals who manage their own pension schemes, and therefore approval of trustees becomes a 'given'.

Why should the State allow people to avoid tax by paying into a pension scheme intended to provide for retirement, and then use this income while aged 50-65 years period and while they continue to earn elsewhere?


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## LDFerguson (6 Jan 2014)

RainyDay said:


> Liam, my concern is not about the tax treatment of income after retirement. My concern is about the scope of abuse and tax avoidance, where a scheme that is intended to help people plan for retirement becomes a scheme that allows people to avoid tax - particularly people who are wealthy enough to engage professional advice to help them down the avoidance road. Also, it is a scheme that is particularly open to wealthy self-employed professionals who manage their own pension schemes, and therefore approval of trustees becomes a 'given'.


 
How can a person avoid tax by taking early retirement?  

All pension scheme trustees have a legal obligation to act in the best interests of scheme members.  So a pension scheme trustee would be breaking the law if s/he made a decision to allow/disallow early retirement for reasons other than for the benefit of the scheme as a whole.  

In practice, early retirement is virtually always permitted in the case of a DC scheme as each member's entitlements are ring-fenced and have no bearing on the scheme as a whole.

It's only a DB scheme where early retirements can have an impact on the scheme as a whole and will often be disallowed in the current climate.  

Whether one is a company director or not doesn't affect this.  



RainyDay said:


> Why should the State allow people to avoid tax by paying into a pension scheme intended to provide for retirement, and then use this income while aged 50-65 years period and while they continue to earn elsewhere?


 
Again - how is someone avoiding tax by taking early retirement?  I'll assume that the person will be on the high-rate tax by combination of their pension and earned income.  So their pension is being taxed at 41% and is also subject to the USC.  They got 41% tax relief on the way in - they're paying 41% tax and the USC on the way out.  Aside from gross roll-up of funds, where's the big avoidance?  

I've said it before on AAM that if a person is fortunate enough that they will be paying tax at 41% when they draw their pension, then the arguments in favour of putting money into a pension at all are weakened.


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## Purple (6 Jan 2014)

LDFerguson said:


> I've said it before on AAM that if a person is fortunate enough that they will be paying tax at 41% when they draw their pension, then the arguments in favour of putting money into a pension at all are weakened.



That's a point worth making again and again; people who have a large enough income on retirement will end up paying income tax twice. This double taxation of people who are actually funding their own retirement is disgraceful. When the levy is taken into account the net benefit becomes very questionable.


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## RainyDay (6 Jan 2014)

LDFerguson said:


> I've said it before on AAM that if a person is fortunate enough that they will be paying tax at 41% when they draw their pension, then the arguments in favour of putting money into a pension at all are weakened.



So you'd have no concerns about eliminating this tax avoidance scheme then, and revising the rule so that you don't draw down pension funds until you reach retirement age (65 or whatever), or if you do need to draw down in an emergency, you refund the tax breaks that you got then?

Or to put the question another way, what are the arguements, weakened or otherwise, for people to put money into their pension schemes and then draw down at age 50?


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## LDFerguson (6 Jan 2014)

RainyDay said:


> So you'd have no concerns about eliminating this tax avoidance scheme then, and revising the rule so that you don't draw down pension funds until you reach retirement age (65 or whatever), or if you do need to draw down in an emergency, you refund the tax breaks that you got then?


 
I think you've missed my point. The current system is already structured so that those who have the biggest pension pots get no benefit from making further contributions, while those who have smaller pension funds can avail of tax relief on contributions towards their retirement. 

Or to put it another way - if your pension fund is big enough that your pension will be taxed at 41% when you retire, then you have little incentive to contribute any further and therefore you get no further tax relief. 

If your funds are smaller, i.e. your pension in retirement will be tax-exempt or taxed at 20% but you are paying tax at 41% then there is a tax benefit for you. 

That's the system as it stands at present. 

If you eliminate the current system, then the people who will lose out the most are those with the smaller funds, i.e. those paying tax at 41% who will not have enough accumulated at retirement to pay tax at 41%. The big guys have already been stopped from gaining any further tax relief. Is that what you're suggesting? 



RainyDay said:


> Or to put the question another way, what are the arguements, weakened or otherwise, for people to put money into their pension schemes and then draw down at age 50?


 
The arguments are the same whether you're planning (or able) to retire at 50 or 70. If your pension is going to be taxed at the low rate or not at all (i.e. your pension will be less than €32,800 per year under the current tax bands for a single person) but you're paying tax at 41% on your earned income (i.e. a salary of >€32,800 for a single person), then you have an incentive to get tax relief at 41% and pay tax at a lower rate when you retire. If you will have a pension of >€32,800 per year when you retire, the incentives are reduced.


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## RainyDay (6 Jan 2014)

LDFerguson said:


> I think you've missed my point. The current system is already structured so that those who have the biggest pension pots get no benefit from making further contributions, while those who have smaller pension funds can avail of tax relief on contributions towards their retirement.
> 
> Or to put it another way - if your pension fund is big enough that your pension will be taxed at 41% when you retire, then you have little incentive to contribute any further and therefore you get no further tax relief.
> 
> ...


Yes, I think we're arguing at cross-purposes a bit. So let me step back and keep it simple.

The only bit of the current system that I proposing changing (for the sake of this arguement) is the ability to retire early and draw down a pension early. I believe it is wrong that some people are able to avoid paying tax on their income by putting money into their pension fund, benefit from growth on their pension fund that is largely tax free, and then draw down that money to supplement their income *during their working years*. This is an abuse of pension tax relief in my view.

So let's say we change the system tomorrow to eliminate the right to draw down pension funds before age 65. What would be impact of this change?


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## LDFerguson (6 Jan 2014)

RainyDay said:


> Yes, I think we're arguing at cross-purposes a bit. So let me step back and keep it simple.
> 
> The only bit of the current system that I proposing changing (for the sake of this arguement) is the ability to retire early and draw down a pension early. I believe it is wrong that some people are able to avoid paying tax on their income by putting money into their pension fund, benefit from growth on their pension fund that is largely tax free, and then draw down that money to supplement their income *during their working years*. This is an abuse of pension tax relief in my view.
> 
> So let's say we change the system tomorrow to eliminate the right to draw down pension funds before age 65. What would be impact of this change?


 
Ah - I think I understand your point better now.  (I still don't agree with it, but at least I think we're debating the same point now.  )  Your issue is the ability of someone to draw their pension at age 50 or 51 and then continue working and earning in a different employment.  I know that this is quite common with gardai and army personnel who can accrue full pension rights at an earlier age than most because of the nature of their jobs.  Those that retire in their 50s (or for army, sometimes 40s) would often get a new job.    

In practice, this could only be stopped in one of two ways - (a) abolish the practice of early retirement altogether or (b) implement a rule that someone who has availed of early retirement cannot subsequently take up paid employment.  I just don't see who this would benefit.  

Let's say I have accumulated a pension of €20,000 per year from a previous employment.  In my current job I'm earning €40,000 per year.  So I hit 50 and start drawing down my €20,000 per year pension.  Because of my concurrent salary I now have to pay nearly half of my pension in tax and USC.  If I had no earned income I would pay very little tax on my pension.  In this example, the exchequer is doing quite nicely from my decision to take my retirement benefits early while continuing to work - they're getting around €9,000 per year from my pension that they wouldn't have otherwise got.  

Granted, that's an example I concocted to illustrate my point.  But I'm struggling to think of another example where it would benefit the exchequer to bar me from taking early retirement from a pension scheme while continuing to work.   

Can you give me an example of the sort of thing you would like to see abolished and how the exchequer would benefit?


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## RainyDay (6 Jan 2014)

LDFerguson said:


> Ah - I think I understand your point better now.  (I still don't agree with it, but at least I think we're debating the same point now.  )  Your issue is the ability of someone to draw their pension at age 50 or 51 and then continue working and earning in a different employment.


Yep, that's the issue.



LDFerguson said:


> Ah - I think I understand your point better now.  (I still don't agree with it, but at least I think we're debating the same point now.  )  Your issue is the ability of someone to draw their pension at age 50 or 51 and then continue working and earning in a different employment.  I know that this is quite common with gardai and army personnel who can accrue full pension rights at an earlier age than most because of the nature of their jobs.  Those that retire in their 50s (or for army, sometimes 40s) would often get a new job.


Yes, I was aware of those situations. I don't see any real justification for allowing early retirement in such cases, while people still have earning potential. If there was a situation where the nature of the job meant that people were basically completely burnt out by age 50 and had no reasonable hope of finding further employment, then maybe the early retirement could be justified. But I don't think that reflects the situation for army or Gardai personnel that I've come across.
I think the rules for Ministerial pensions changed recently to stop Ministers from drawing down pensions until they reach 65, and rightfully so.


LDFerguson said:


> Let's say I have accumulated a pension of €20,000 per year from a previous employment.  In my current job I'm earning €40,000 per year.  So I hit 50 and start drawing down my €20,000 per year pension.  Because of my concurrent salary I now have to pay nearly half of my pension in tax and USC.  If I had no earned income I would pay very little tax on my pension.  In this example, the exchequer is doing quite nicely from my decision to take my retirement benefits early while continuing to work - they're getting around €9,000 per year from my pension that they wouldn't have otherwise got.
> 
> Granted, that's an example I concocted to illustrate my point.  But I'm struggling to think of another example where it would benefit the exchequer to bar me from taking early retirement from a pension scheme while continuing to work.
> 
> Can you give me an example of the sort of thing you would like to see abolished and how the exchequer would benefit?


I think the examples would need to look at the kind of tax relief given to person in order to build up that pension pot. Would the State be better off not giving the tax relief that was given to build up this pot, taking the normal income tax as the money was earned, and let the person supplement their later income with normal savings from after tax income, rather than with drawn down pension?


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## RainyDay (7 Jan 2014)

There is also an issue about the ability to minimise tax paid by spreading income over a longer period. In a 'standard' pension situation, you will get your pension at 65 and have approx 10 years life remaining. So you get the benefit of tax credits for a 10 year period.

If you take your pension early at 50, you get to spread the same pot of money over a 25 year period, and you are therefore going to be paying less tax overall on the same pot of money.


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## 44brendan (7 Jan 2014)

In line with LD Ferguson's earlier commentary, I suggest that you should look at his response to the core issue of your arguement. " Is the state losing out on tax due to those who retire early". In effect the short answer is no as while pension relief was given on contributions made, the actual pension payments are taxable. Admittedly, some people will have availed of relief at 41% on the way in and if pension paid is low it will be taxed at the lower rate, but this is generally restricted to employees who avail of the 50 age bracket for early retirement and those forced to retire early due to ill health etc. I would not regard it as a loophole in the system and in many ways it facilitates additional jobs being made available.


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## RainyDay (7 Jan 2014)

44brendan said:


> In line with LD Ferguson's earlier commentary, I suggest that you should look at his response to the core issue of your arguement. " Is the state losing out on tax due to those who retire early". In effect the short answer is no as while pension relief was given on contributions made, the actual pension payments are taxable. Admittedly, some people will have availed of relief at 41% on the way in and if pension paid is low it will be taxed at the lower rate, but this is generally restricted to employees who avail of the 50 age bracket for early retirement and those forced to retire early due to ill health etc. I would not regard it as a loophole in the system and in many ways it facilitates additional jobs being made available.



I'm not so sure it facilitates additional jobs being made available, as my concern is about people who continue in employment after retirement, i.e. are drawing down on their retirement pension, while continuing to work.

I'm also not so sure about it being tax neutral, because of the ability to spread the pension drawdown over a much longer period of time, e.g. 25 years instead of a more typical 10 years.

But regardless, if it is tax neutral, and there is no significant gain for the tax payer, can I assume that you'd have no objection to eliminating this option to retire early while continuing to work?


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## Purple (8 Jan 2014)

RainyDay said:


> I'm not so sure it facilitates additional jobs being made available, as my concern is about people who continue in employment after retirement, i.e. are drawing down on their retirement pension, while continuing to work.



What about people over 65 who continue to work?
what about an expert in a particular field who is asked to consult with a business after they retire early?
What about retired people who do speaking tours?
What if a retired person starts a business?

I can't see how people who are drawing a pension can be stopped from working.
I don't see why they should either.


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## marathonic (14 Jan 2014)

It's quite simple really. If someone availed of 41% tax relief on pension contributions on the way in and continue to work past 50, chances are they are still going to be higher rate tax payers.

Therefore, they're going to go over the threshold and continue to pay higher rate tax on their earned income. If they draw their pension, they're also going to pay higher rate tax on the entire pension income. 

I think you're going to be alone in arguing that people shouldn't be allowed to draw down on private pensions before state retirement age but, even so, removing this feature wouldn't provide much, if any, benefit to the exchequer.


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## RainyDay (14 Jan 2014)

marathonic said:


> It's quite simple really. If someone availed of 41% tax relief on pension contributions on the way in and continue to work past 50, chances are they are still going to be higher rate tax payers.
> 
> Therefore, they're going to go over the threshold and continue to pay higher rate tax on their earned income. If they draw their pension, they're also going to pay higher rate tax on the entire pension income.


You're ignoring the fact that those who avail of the 41% tax relief get the opportunity to benefit from the growth in the gross amount, and use this benefit to fund their age 50-65 years. Those who don't have this opportunity, because they don't have influence over their trustees, don't get this benefit.

I'm kind-of confused by how people keep telling me how there is no real tax benefit for people who do retire early and draw down pensions, but we really shouldn't change the rules. If there is no real benefit, then there is no problem with change the rules to rule out such a benefit - right?

For me, it is an equality issue. We have two guys, Mr A and Mr B, both IT developers and programmers. Mr A is a full-time employee of ACME corp, and a member of their DC pension fund. Mr B is a contractor at ACME Corp, and contributes to his own pension fund. They both contribute 10% of salary to their pension funds.  Mr B gets a higher day rate than Mr A, but doesn't get sick pay or holiday pay or other employee benefits. They both hit 50, and ACME Corp closes down the IT unit, though the main business stays open. They both pick up new jobs, albeit at lower income rates than before.

The trustees of Acme Corp fund won't allow early retirements, so Mr A has to wait until he hits 65 to get at his pension. Mr B controls his own fund, and therefore can take early retirement, and enjoy the fruits of his contributions from age 50. 

In these situations, why should the State have given a tax break to Mr B that is not available to Mr A?


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## LDFerguson (14 Jan 2014)

RainyDay said:


> Those who don't have this opportunity, because they don't have influence over their trustees, don't get this benefit.


 
Red herring. Nobody gets to retire early because they have some "influence over the trustees". Either the scheme allows early retirement or it doesn't.  You seem to be under the misconception that if one is in a senior position or a director of a company, or indeed is a pension scheme trustee, that somehow this means that the clearly-defined rules governing what a trustee can and cannot do can somehow be circumvented for personal gain.  They can't.   

In practice the only people who are disallowed early retirements are those in Defined Benefit schemes where early retirements would have an adverse financial impact on other members of the scheme.

So your example of Mr A and Mr B is also wrong, in that either one would be permitted to leave early.


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## LDFerguson (14 Jan 2014)

RainyDay said:


> I'm kind-of confused by how people keep telling me how there is no real tax benefit for people who do retire early and draw down pensions, but we really shouldn't change the rules. If there is no real benefit, then there is no problem with change the rules to rule out such a benefit - right?


 
Just because there is no real tax benefit for something isn't a good enough reason for it to be banned by law.  The current regime allows people to make choices that may suit their lifestyle.  Do you want to take that away even though it would not benefit the exchequer?  

Example - person works 60 hours a week.  At 55 he decides he'd like to cut back on his hours and spend more time with his family.  Financial commitments dictate that he cannot afford to give up work altogether.  So he leaves his present job, takes up a new job at a lower rate of pay but less hours and supplements his income by drawing down his pension early.  He's still paying 41% tax on his pension and part-time income combined.

I just don't who would be the winner by banning early retirements / continuing to work.  I can see only those who would lose out.


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## Gerry Canning (14 Jan 2014)

The original Question was should people be permitted to Draw Pension @ 50.
.................................
Definately the answer must be yes,if the folowing applies.
1. On starting the Pension Fund that it was clear they could retire on pension @50+.

Otherwise no-one dare trust that what they sign up for today is safe in the future.If long term decisions are not ring -fenced , why would anyone sign up for something that could be changed at the whim of Government.   
{Eg I consider the Pension Fund Levy to be grossly unfair and it sets a dangerous precedent.}

It may Gall that someone used the system to (avoid) taxes at the time they set up their fund . but to now penalise would be just wrong.


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## RainyDay (15 Jan 2014)

Gerry Canning said:


> The original Question was should people be permitted to Draw Pension @ 50.
> .................................
> Definately the answer must be yes,if the folowing applies.
> 1. On starting the Pension Fund that it was clear they could retire on pension @50+.
> ...


I see your point, but that same logic could be applied to eliminate the Pension Levy (aka salary cut) that was applied to public servants. It could be applied to any planned change to pension rules. I don't think any Govt can be frozen into inaction on changing bad laws.



LDFerguson said:


> Red herring. Nobody gets to retire early because they have some "influence over the trustees". Either the scheme allows early retirement or it doesn't.  You seem to be under the misconception that if one is in a senior position or a director of a company, or indeed is a pension scheme trustee, that somehow this means that the clearly-defined rules governing what a trustee can and cannot do can somehow be circumvented for personal gain.  They can't.


I see a number of pension providers highlighting early retirement options as important product features for Directors pensions and SSAPS, so some of those in the industry seem to feel that it is certainly a benefit for those who are largely in control over their own pensions.



LDFerguson said:


> In practice the only people who are disallowed early retirements are those in Defined Benefit schemes where early retirements would have an adverse financial impact on other members of the scheme.
> 
> So your example of Mr A and Mr B is also wrong, in that either one would be permitted to leave early.


OK, so for the sake of arguement, let's say that the ACME pension scheme is a DB scheme, and Mr A is a member of the DB scheme. 

Why should the state give Mr B a tax break to save for his 50-65 years that is not available to Mr A?



LDFerguson said:


> Just because there is no real tax benefit for something isn't a good enough reason for it to be banned by law.  The current regime allows people to make choices that may suit their lifestyle.  Do you want to take that away even though it would not benefit the exchequer?


Just to be clear, it's not about 'banning' early retirement. It is about removing the current tax break for early retirement. 

People are welcome to make their own lifestyle choices, but why would they expect a tax break for it?



LDFerguson said:


> Example - person works 60 hours a week.  At 55 he decides he'd like to cut back on his hours and spend more time with his family.  Financial commitments dictate that he cannot afford to give up work altogether.  So he leaves his present job, takes up a new job at a lower rate of pay but less hours and supplements his income by drawing down his pension early.  He's still paying 41% tax on his pension and part-time income combined.


While he's still paying tax on his pension, he benefited from growth in the tax-free contribution, an option that is not available to other people. You could apply to same logic to the situation many young parents find themselves in their 30s or 40s dealing with reduced salaries and extra expenses for young children. Or to people who lose their jobs at any age. Or to anyone who's going to college to study and has little/no income. Do we allow all of these to draw down any pension contributions that they've made tax free? If not, why not?



LDFerguson said:


> I just don't who would be the winner by banning early retirements / continuing to work.  I can see only those who would lose out.


The winner would be the State, as people would be less likely to avail of the tax break on pension contributions that are really just savings for their middle years, rather than true pension contributions.

The loser would probably be the pensions industry, with reduced commission income. 

Let's step back for a minute and assume we are working with a blank sheet of paper, designing a totally new pension system. Why would we give people a tax break in their 30s and 40s to save for their 50-65s?


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## SoylentGreen (16 Jan 2014)

LDFerguson said:


> In practice, early retirement is virtually always permitted in the case of a DC scheme as each member's entitlements are ring-fenced and have no bearing on the scheme as a whole.
> 
> It's only a DB scheme where early retirements can have an impact on the scheme as a whole and will often be disallowed in the current climate.



That's interesting. I am in a DB scheme. I contacted the trustees at age 60 and they said that they were not allowing anyone draw down an early retirement pension.  When I left the organisation that I was working in I made a lump sum contribution to my pension. I have been told by Mercer that this is being treated as a DC contribution.
Is it possible for an individual to draw down the DC portion of their pension early and leave the DB portion until normal retirement date?


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## marathonic (16 Jan 2014)

RainyDay said:


> OK, so for the sake of arguement, let's say that the ACME pension scheme is a DB scheme, and Mr A is a member of the DB scheme.
> 
> Why should the state give Mr B a tax break to save for his 50-65 years that is not available to Mr A?


 
I think the key point here is what Gerry Canning appears to be getting at in post # 19. It all depends on what is promised when the person first joined the pension.

In your theoretical scenario above involving Mr A and Mr B, the two people would have known exactly what the terms of the pension scheme, which is only part of an overall benefits package, were before they joined.

For this reason, Mr A agreed to a benefits package that didn't allow early retirement but, as it's a DB scheme, is likely to result in a higher overall payment when he eventually gets to claim benefits from the scheme (as is the case with most DB schemes).

People need to assess the overall package offered by an employer when entering the workplace. This includes things like salary, healthcare, gym memebership and other perks as well as the pension itself. 

If Mr A initially agreed to a benefits package that doesn't include early retirement and Mr B agreed to one that does, potentially sacrificing one of the other benefits to secure a potential early retirement, then I would consider it in absolutely no way unfair whatsoever that Mr B can retire earlier than Mr A.

I would consider it VERY unfair if the government now turned around and changed the rules for either of these two hypothetical people.


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## RainyDay (16 Jan 2014)

marathonic said:


> I think the key point here is what Gerry Canning appears to be getting at in post # 19. It all depends on what is promised when the person first joined the pension.
> 
> In your theoretical scenario above involving Mr A and Mr B, the two people would have known exactly what the terms of the pension scheme, which is only part of an overall benefits package, were before they joined.
> 
> ...



You have a point, but really, how many people in their 20s even think about pensions, let alone look at early retirement options?

But regardless, let's say I take your point, and let's say we don't change things for current employees, but we do change things for future employees

So then, why would we want to give a tax break to people who are now entering the workplace in order to provide for their 50-65 years?


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## marathonic (16 Jan 2014)

RainyDay said:


> You have a point, but really, how many people in their 20s even think about pensions, let alone look at early retirement options?


 
I totally agree with this. Most people only look at the headline salary. For example, in my twenties, when I started my current job, I didn't even consider the healthcare plan as one of the benefits. Now that I'm reaching an age where I'd consider taking out a plan if my employer didn't provide one, I realise how much of a benefit it is. With the pension being so far away, the benefit is likely ignored for a lot longer by a lot of people.

This is more to do with financial education as opposed to flaws within the system.



RainyDay said:


> But regardless, let's say I take your point, and let's say we don't change things for current employees, but we do change things for future employees
> 
> So then, why would we want to give a tax break to people who are now entering the workplace in order to provide for their 50-65 years?


 
I see your point here. 50 is a very young age to be able to take retirement benefits. Whether it would benefit the exchequer to increase this remains to be since, especially in a high-unemployment environment.

For example, if someone decides to completely retire at 50 today, that person will no longer be getting tax relief on pension contributions and will most likely be paying tax on pension income. 

Their employer is likely to take on 1 or more employees to replace that person. The end result of this is likely to be less employees in receipt of benefits. 

Basically, the permission to take pension benefits at 50 offers flexibility to the general public but the removal of this benefit may not provide benefits to the country as a whole - so why remove it?


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## RainyDay (16 Jan 2014)

marathonic said:


> I see your point here. 50 is a very young age to be able to take retirement benefits. Whether it would benefit the exchequer to increase this remains to be since, especially in a high-unemployment environment.
> 
> For example, if someone decides to completely retire at 50 today, that person will no longer be getting tax relief on pension contributions and will most likely be paying tax on pension income.
> 
> ...



Just to clarify, my concern is about people who take 'retirement' at 50, draw down a pension built up with tax free contributions, and then continue to work in another job. So they continue to get tax relief on further pension contributions, while benefiting from the tax free lump sum and tax free fund that they built up.

This isn't a 'bona fide' retirement to me. It's just a nice tax break available to some people between 50-65, but not to everybody.

Why would we want such a system?


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## Clohass (16 Jan 2014)

RainyDay said:


> Just to clarify, my concern is about people who take 'retirement' at 50, draw down a pension built up with tax free contributions, and then continue to work in another job. So they continue to get tax relief on further pension contributions, while benefiting from the tax free lump sum and tax free fund that they built up.
> 
> This isn't a 'bona fide' retirement to me. It's just a nice tax break available to some people between 50-65, but not to everybody.
> 
> Why would we want such a system?



Personally I don't see why this needs to change. If at 50 a person has built up a pension pot over decades, in the process tying up their savings and suffering investment losses as well as tax free gains then if they wish to draw this down and pay tax and PRSI and USC on this drawdown, (having paid USC and PRSI on the way in also so therefore taxed here on the double I understand) then perhaps they feel they wish to work part time in a less challenging role or take a risk on starting a small business with the security of a regular income then I think they should have that choice, having forgone income and provided for their retirement out of their own earnings in addition to paying for a Non-Contrib pension along the way.


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## RainyDay (17 Jan 2014)

Clohass said:


> perhaps they feel they wish to work part time in a less challenging role or take a risk on starting a small business


And how about if they don't work part time and don't start a small business. How about they move to a different employer, doing pretty much the same job for the same salary as they did before. Do they deserve a tax break then?


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## marathonic (17 Jan 2014)

RainyDay said:


> And how about if they don't work part time and don't start a small business. How about they move to a different employer, doing pretty much the same job for the same salary as they did before. Do they deserve a tax break then?


 
I don't see a problem here. They'd be paying higher rate tax as well as USC and PRSI on the pension income. More revenue for the state.


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## RainyDay (17 Jan 2014)

marathonic said:


> I don't see a problem here. They'd be paying higher rate tax as well as USC and PRSI on the pension income. More revenue for the state.



No, less Revenue for the State than if they hadn't gotten the tax break on their pension investments.

That's the problem here. They are getting a tax break on their pension contributions, but it is not being used for a bone fide pension. It is being used as long term savings.


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## marathonic (17 Jan 2014)

RainyDay said:


> No, less Revenue for the State than if they hadn't gotten the tax break on their pension investments.
> 
> That's the problem here. They are getting a tax break on their pension contributions, but it is not being used for a bone fide pension. It is being used as long term savings.


 
That's debatable. Someone that put 100 euro into a pension a few years ago would probably have got relief at the higher rate. The funds would have grown tax-free within the pension, but that's irrelevant to the government because the benefit of this growth wasn't provided by the government, it was a return for the risk entered into by the pension holder.

They'll have paid the pension levy on these funds over the past few years and when they take an income, with the introduction of the USC, will pay this as well as the higher rate tax on what, in theory, should be a higher amount of euros. The USC wouldn't have been payable if they'd not invested in their pension during past decades.

I honestly don't see how the government take in less tax from someone who gets higher-rate tax relief on the way in, pays an annual pension levy and pays higher-rate tax as well as USC and PRSI on the way out.


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## LDFerguson (17 Jan 2014)

RainyDay said:


> No, less Revenue for the State than if they hadn't gotten the tax break on their pension investments.
> 
> That's the problem here. They are getting a tax break on their pension contributions, but it is not being used for a bone fide pension. It is being used as long term savings.


 
This is the point.  For most people, *there is no tax break* in this situation.  They do it because they want to, for personal reasons. 


They got 41% tax relief on their pension contributions.  They're paying 41% tax on their pension PLUS the USC because they've got separate taxable earnings.  Bonus for the Government.
They got tax-free roll-up of investment funds while accumulating their pension, like everyone does who has a pension fund.  They have retired their funds now so they're not getting this any more.  Bonus #2 for the Government.
And before you ask - just because there is no tax break, I wouldn't want to see this facility banned by law.  If it's not generating any extra money for the Exchequer, then why bother banning it?  It suits some people to have the flexibility.  

I can access my (non-pension) cash savings any time I want from my bank.  I don't get any tax benefit whether I withdraw my deposits now or in 5 years time.  But just because I don't get any tax benefit from this, that still doesn't mean that the Government should impose a law saying I can't access my savings for a few years.


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## oysterman (17 Jan 2014)

RainyDay said:


> That's the problem here. They are getting a tax break on their pension contributions, but it is not being used for a bone fide pension. It is being used as long term savings.


 (my underlining of rainyday's text)

I'm not quite understanding the point above...surely there is no distinction between pension and long-term savings?

I can see why, at first glance, somebody drawing down a pension from one job in his/her fifties while working in another may look as if they are getting away with something. Liam and others have dealt quite excellently with the argument that the state is missing out on some tax revenue so I don't need to re-visit that.

In addition there is the significant social benefit that many early retirees are likely to withdraw from full-time engagement in the labour market which should free up opportunities for younger workers. Senior workers struggling on long after their sell-by dates are likely to prove to be a significant source of frustration and lost opportunity in the future as the government seeks to lengthen people's working lives. Getting them out of line management jobs in corporations and the public service as soon as we can will help society; 'early' pension drawdown may facilitate that.

And of course there are both private and social benefits in smoothing the transition into happy semi-retirement as opposed to unhappy and unhealthy unnecessarily prolonged working lives.​


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## RainyDay (18 Jan 2014)

marathonic said:


> That's debatable. Someone that put 100 euro into a pension a few years ago would probably have got relief at the higher rate. The funds would have grown tax-free within the pension, but that's irrelevant to the government because the benefit of this growth wasn't provided by the government, it was a return for the risk entered into by the pension holder.


The tax-free growth is far from irrelevant. It is not available to people who did not have the 'early retirement' option. So it is a tax break, available to some people, but not to others, for no good reason other than 'age'.



marathonic said:


> The USC wouldn't have been payable if they'd not invested in their pension during past decades.


But they would have payed USC on the original income - right?



marathonic said:


> I honestly don't see how the government take in less tax from someone who gets higher-rate tax relief on the way in, pays an annual pension levy and pays higher-rate tax as well as USC and PRSI on the way out.


So if there is no tax saving to the individual, why do you think so many people avail of this option (and get so upset when it's removal is mooted)? And what about the tax-free lump sum?



LDFerguson said:


> This is the point.  For most people, *there is no tax break* in this situation.  They do it because they want to, for personal reasons.
> 
> 
> They got 41% tax relief on their pension contributions.  They're paying 41% tax on their pension PLUS the USC because they've got separate taxable earnings.  Bonus for the Government.
> ...


I'm not sure I'm quite getting your point. I never suggested banning any particular action by law. I suggested removal of the tax break. People would still be welcome to manage their savings/investments as they choose. They just wouldn't get a tax break.

And I don't see your point about flexibility. Surely putting money into a pension fund is the ultimate in inflexibility. People wouldn't be doing this if there wasn't a particular benefit for them.

It's also not true to say that they're not availing of pension tax relief anymore, as they could continue to invest in pensions from their other employment.



oysterman said:


> (my underlining of rainyday's text)
> 
> I'm not quite understanding the point above...surely there is no distinction between pension and long-term savings?
> ​


The distinction is the tax break.



oysterman said:


> And of course there are both private and social benefits in smoothing the transition into happy semi-retirement as opposed to unhappy and unhealthy unnecessarily prolonged working lives.





oysterman said:


> (my underlining of rainyday's text)
> 
> In addition there is the significant social benefit that many early retirees are likely to withdraw from full-time engagement in the labour market which should free up opportunities for younger workers.​




If this were the case, I wouldn't have a huge problem with the scheme. My problem is with those who avail of the early retirement tax break, and then continue to work, in a different job - so there is no additional opportunity for younger workers.



oysterman said:


> Senior workers struggling on long after their sell-by dates are likely to prove to be a significant source of frustration and lost opportunity in the future as the government seeks to lengthen people's working lives. Getting them out of line management jobs in corporations and the public service as soon as we can will help society; 'early' pension drawdown may facilitate that.


More than a little ageist there, no? I can well understand that some people will choose to wind down and work less as they get older. But I really don't want to encourage a situation where anyone over 50 is suddenly seen as disposable item to be dumped out at the earliest opportunity.

Perhaps I'm going to have to run some numbers....​


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## marathonic (18 Jan 2014)

RainyDay said:


> The tax-free growth is far from irrelevant. It is not available to people who did not have the 'early retirement' option. So it is a tax break, available to some people, but not to others, for no good reason other than 'age'.



The tax free growth IS available to people who don't have the early retirement option. What makes you think it isn't? If you see the tax-free growth as such a big tax break provided by the government, why aren't you arguing that people should be retiring early so that they no longer avail of this tax break as opposed to continuing to receive the 'tax break' right up until state retirement age?




RainyDay said:


> But they would have payed USC on the original income - right?



Under current rules, yes. The point I was trying to make, which is no longer applicable, is that the people that you seem to hold a grudge against is those who can now retire early after having built up a significant pension pot over decades gone by. Most of their contributions, right up until 2012, would not have been subjected to USC if they'd taken the income instead.



RainyDay said:


> So if there is no tax saving to the individual, why do you think so many people avail of this option (and get so upset when it's removal is mooted)? And what about the tax-free lump sum?



Of course there is a tax saving to the individual, regardless of whether there is an early retirement option or not. My point is that there isn't likely to be any additional tax revenue to the government if they removed the option. People get upset when it's removal is mooted because it removes flexibility, not tax savings. If it was all about tax savings, people would want to continue to contribute so as to continue to reduce their annual tax bill.

I would highly recommend that you do run the numbers and post them up here. I'm pretty sure there's no benefit to the government of increasing the minimum age at which you can draw benefits. Of course, coming up with accurate figures would be very difficult because you'd really need to include the potential reduction of the number of social welfare recipients as well as the tax intake from the young people replacing the newly retired.

I assume that whatever scheme you are in doesn't allow early retirement?


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## LDFerguson (18 Jan 2014)

RainyDay said:


> So if there is no tax saving to the individual, why do you think so many people avail of this option (and get so upset when it's removal is mooted)?


 
Because they want to change their work pattern as they get older. 



RainyDay said:


> My problem is with those who avail of the early retirement tax break, and then continue to work, in a different job - so there is no additional opportunity for younger workers.


 
(1) Again - you're referring to a non-existent "early retirement tax break". *There is no such thing as an early retirement tax break. *There is a tax break available to encourage every taxable worker in the country to save towards their pension. As has been shown in several posts above, in a lot of cases people retiring early but working elsewhere pay additional taxes to do this, but are happy to do so as a lifestyle choice. So just in case my point isn't clear *- there is no such thing as an early retirement tax break.*

(2) Someone who takes early retirement is hardly likely to go back into a full-time job working the same hours and earning the same pay as they were previously. That wouldn't make any sense, either financially or personally. So there is very definitely an opportunity created for other workers. 

As a separate point, personally I have a lot of sympathy for people who are in insolvent Defined Benefit pension schemes and for whom the early retirement option has been suspended, through no fault of their own. There are a lot of issues around Defined Benefit pension schemes being poorly managed (by the pensions industry, the investment industry and/or the employers) and the rules applying to such schemes and their wind-up being inequitable. But just because one group of workers has its benefits impaired by the poor decisions of the past, the focus should be on how best to fix their problems rather than taking away the flexibility of everyone outside the DB arena just so that they match.


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## LDFerguson (18 Jan 2014)

RainyDay said:


> And what about the tax-free lump sum?


 
If someone takes early retirement, their tax-free lump sum will always be smaller than if they stay to Normal Retirement Age.  So by making this choice, they're paying more tax than if they didn't.


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## RainyDay (18 Jan 2014)

LDFerguson said:


> (2) Someone who takes early retirement is hardly likely to go back into a full-time job working the same hours and earning the same pay as they were previously. That wouldn't make any sense, either financially or personally. So there is very definitely an opportunity created for other workers.


Sorry, but that's just not true. I know three people in my circle who have done exactly this, taken early retirement, and continued to work full-time. One Garda Inspector moved in a security management role in the private sector, one senior researcher who moved into a research role in an NGO, and one civil servant in a technical role who moved to a private sector practice. In one of these case, I know for a fact that they earning MORE than their pre-retirement role. I don't know the detail of the others, but I would strongly suspect that they are earning at least the same as before.



LDFerguson said:


> (1) Again - you're referring to a non-existent "early retirement tax break". *There is no such thing as an early retirement tax break. *There is a tax break available to encourage every taxable worker in the country to save towards their pension. As has been shown in several posts above, in a lot of cases people retiring early but working elsewhere pay additional taxes to do this, but are happy to do so as a lifestyle choice. So just in case my point isn't clear *- there is no such thing as an early retirement tax break.*


So, let's look at Mr X and Mr Y this time, both working in similar jobs, earning similar salaries, making similar pension contributions.

Mr X takes early retirement at 50, draws down his pension and lump sum, then moves to a different employer, doing the same job as before, earning the same salary, making the same pension contribution as before.

Mr Y doesn't take early retirement, and works until he is 65, then draws down his pension and tax free lump sum.

Both live on until age 75.

Are you saying that over their lifetimes, Mr X and Mr Y will pay the same tax, assuming all other things are equal?


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## Sophrosyne (18 Jan 2014)

_All other things being equal_, Mr X will pay more tax and make more pension contributions than Mr Y.

Mr Y, will at any time, have only one taxable income source; Mr X, post-retirement, will have two. 

In his lifetime, Mr Y will make pension contributions in respect of just one employment; Mr X will make contributions in respect of two.


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## marathonic (19 Jan 2014)

This is an argument that I doubt you'll be able to win. The people who continue to work whilst claiming pension benefits will be paying a significant amount of tax. This is especially true if they continue to work in a high-paying job that pushes them into the higher-rate tax bracket before the pension income is taken into consideration.

Just because you know of a small number of people who claim pension benefits whilst working in a highly paid job doesn't mean that they are doing the financially responsible thing. In fact, the government would probably love if more of us done this - it would mean that more of the money currently held in pension funds would be subjected to higher rate tax than what would be if people continued to work until state pension age (and continued to receive higher rate tax relief on pension contributions).

The only people that can take advantage of the system a little are those who increase contributions whilst approaching retirement getting higher rate tax relief - in the knowledge that they'll be paying lower rate tax, or no tax, in retirement. However, you don't appear to be arguing against this and at least they'll be less reliant on the state in retirement.

If I'm not mistaken, one of your arguments is that these people take a pension income whilst working a high paid job and continuing to make pension contributions. What would be the sense in this? They'd be paying higher rate tax and USC on the income they take from the pension and receiving the same relief on pension contributions. The net effect would be negligible on the exchequer.


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## RainyDay (22 Jan 2014)

Great news for all of those in favour of early retirement while continuing to work;

http://www.irishexaminer.com/irelan...ed-with-334k-256103.html#.UuA5OUHvqP0.twitter


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## orka (23 Jan 2014)

RainyDay said:


> Great news for all of those in favour of early retirement while continuing to work;
> 
> http://www.irishexaminer.com/ireland/irish-water-manager-had-retired-with-334k-256103.html#.UuA5OUHvqP0.twitter


 As your concern is only those who get tax relief on contributions, retire early AND continue working, you will be comforted to know that he probably didn’t get much in the way of tax relief as he wouldn’t have paid much in the way of contributions over his career – certainly nothing approaching the 2M-2.5M value of his pension package. I doubt his total career contributions came close to even covering the lumpsum amounts.

But just taking this as an example of where your logic falls down:

He retired early with a lump sum of 270K and a pension of 63K – and you are totally okay with this because it is just early retirement which you don’t have a problem with. He will pay income tax on his 63K which will bring him into the higher tax bracket so every marginal euro earned will be at 52% tax.
Irish Water needed a senior manager, let’s say on 100K. If the person appointed had no other income (so just a regular non-retired person), they would pay tax of c. 37.5K. But because the appointee is a retiree with other income already putting him in the highest tax bracket, he will pay 52K tax on the 100K salary. So the government gains 14.5K tax.
Your whole argument seems to be a bit dog in the manger: you’re okay with the concept of taxfree lump sums and you’re okay with the concept of early retirement but you just don’t seem to want people working while ‘retired’ – even though it should actually increase overall revenue tax take. 
I could understand more that you didn’t like taxfree lump sums or even that you didn’t like early retirement because it spreads the pension fund as a smaller amount over a longer time period – so average tax rates on it will be lower. But given that you are okay with both these things and ‘working in retirement’ actually increases tax compared to the status quo, I am struggling to understand your argument – maybe you could give us a simple example of where you see a problem.


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## ronaldo (23 Jan 2014)

RainyDay said:


> Great news for all of those in favour of early retirement while continuing to work;
> 
> http://www.irishexaminer.com/irelan...ed-with-334k-256103.html#.UuA5OUHvqP0.twitter


 
I detect a hint of sarcasm in your post. Obviously, this news story doesn't prove your point that early retirement whilst continuing to work should be forbidden. One example of a person who has benefited excessively doesn't mean that the entire system should be changed. 

Look at it another way, this person is likely to be using up their entire lower rate tax band allowance in their new employment and paying tax/USC at the top rate on their entire pension income.


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## LDFerguson (23 Jan 2014)

This article would make me question a couple of things: - 


Mr O'Dwyer's pension package from the County Council seems very generous.  But I don't know the man or his work so I'm in no position to comment on whether or not he deserved such a generous package when he retired.  That would be a matter for whoever decides on what the public service pensions should be.
It's also notable in the article that Irish Water seem to be recruiting a lot of  retired County Council employees.  I would question whether or not such people are the most suitable for the positions and if an open enough search was done to fill these positions.  Again I don't know the people involved so I'm not in a position to comment on whether or not they were the most suitable.
But I can't see how this has anything to do with the thread here?


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