Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% cut?

[ajapale]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

I agree with all of that. But what has that got to do with the subject of this thread; the real cost of Pension Levies?

Yes, this puzzles me as well!

I have changed the title with the OP's explicit question. (but have changed the word sector to service as the Public Service Pension Levy does not extend to large parts of the Public Sector.. ESB, Bord Gas etc).

Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% cut?

 

[gipimann]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

I pay 6.5% Superannuation (my regular pension contribution).

The Pension Levy is higher than my superannuation contribution, at 7.34% pre-tax.

 

[Howitzer]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Yes, this puzzles me as well!

I have changed the title with the OP's explicit question. (but have changed the word sector to service as the Public Service Pension Levy does not extend to large parts of the Public Sector.. ESB, Bord Gas etc).

Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% cut?

Thanks, though I'm not sure we're any closer to getting a definitive answer. I didn't think it was that complicated a question.

 

[Protocol]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

6.533% of my gross.

 

[becky]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

I thought I answered it in post 24.

My taxable pay is 12.83% less then my gross pay. The difference is the pension contribution and penion levy.

 

[Shawady]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Public Sector employees, does your, before tax, salary show a 7-8% cut or a 3-4% cut? (@55K)

Howitzer,
The pension levy does not affect salary before tax i.e. someone on 55K will still be on 55K after the introduction of the pension levy. However, their after-tax pay will be reduced to the equivilant if they have received a 7.5 pay cut.
A pay cut is on gross pay so because someone on the higher rate of tax pays half of it in tax their net pay will only be redcued by 3.5 - 4%. Similarly, because someone on 55K a year is entitled to full tax relief on pension related payments, the 7.5% levy will reduce net pay by 3.5 - 4%.
In other words, the 7.5 % pension levy has the same effect of a 7.5% pay cut on net pay. The advantage for the employee is that pension entitlements are calculated on gross salary and the advantage for the government is it did not affect PS pensioners and it can be used to 'convince' PS workers to take early retirement.

 

[Sunny]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Howitzer,
The pension levy does not affect salary before tax i.e. someone on 55K will still be on 55K after the introduction of the pension levy. However, their after-tax pay will be reduced to the equivilant if they have received a 7.5 pay cut.
A pay cut is on gross pay so because someone on the higher rate of tax pays half of it in tax their net pay will only be redcued by 3.5 - 4%. Similarly, because someone on 55K a year is entitled to full tax relief on pension related payments, the 7.5% levy will reduce net pay by 3.5 - 4%.
In other words, the 7.5 % pension levy has the same effect of a 7.5% pay cut on net pay. The advantage for the employee is that pension entitlements are calculated on gross salary and the advantage for the government is it did not affect PS pensioners and it can be used to 'convince' PS workers to take early retirement.

Sorry I must be thick but I still don't get it.

 

[Shawady]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Sorry I must be thick but I still don't get it.

My reading of the situation is that the government had two options. Implement a 7.5% pay cut (which would have been more straight forward) or impose this pension levy, which reduces net pay on a graduated level.

In option one, a 7.5 pay cut would have reduced gross pay for someone on 55K by about 4K. However, at this level of income someone pays tax and prsi on almost half their income (over 34k I think) so although their gross income is reduced by 4K, they are paying less tax and their net income only reduces by approx 2K. So a 7.5% pay cut on gross income will only result in an approx 3.75% redcuction in net pay.

In option two, someone on 55K will still receive 55K gross but now has a pension levy which is approx 4K spread over the year e.g €330 a month if paid monthly.
However as all pension contributions and therefore this new pension levy is allowed tax relief, someone on 55K will be entitled to tax relief at the higher rate for their pension levy i.e. the net cost of the pension levy will be approx half of the original 4K. So although the pension levy may be 7.5%, the reduction in net pay will be approx 3.75%.

My reading of it is that the 7.5% pension levy for someone on 55K has the same (or very similar) effect on net pay than a 7.5% pay cut. The difference is that gross pay is unchanged with the pension levy and therefore pension entitlements will not be affected.

 

[Shawady]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Sunny, another way of looking at it is that the government wanted to reduce PS pay. They could have just implemented a 7.5% pay cut but that would have made too much sense. Instead they came up with the 'levy'.
From my memory, it was reported in the media that this was an idea that was initially proposed by the union side.

 

[Sunny]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

My reading of the situation is that the government had two options. Implement a 7.5% pay cut (which would have been more straight forward) or impose this pension levy, which reduces net pay on a graduated level.

In option one, a 7.5 pay cut would have reduced gross pay for someone on 55K by about 4K. However, at this level of income someone pays tax and prsi on almost half their income (over 34k I think) so although their gross income is reduced by 4K, they are paying less tax and their net income only reduces by approx 2K. So a 7.5% pay cut on gross income will only result in an approx 3.75% redcuction in net pay.

In option two, someone on 55K will still receive 55K gross but now has a pension levy which is approx 4K spread over the year e.g €330 a month if paid monthly.
However as all pension contributions and therefore this new pension levy is allowed tax relief, someone on 55K will be entitled to tax relief at the higher rate for their pension levy i.e. the net cost of the pension levy will be approx half of the original 4K. So although the pension levy may be 7.5%, the reduction in net pay will be approx 3.75%.

My reading of it is that the 7.5% pension levy for someone on 55K has the same (or very similar) effect on net pay than a 7.5% pay cut. The difference is that gross pay is unchanged with the pension levy and therefore pension entitlements will not be affected.

Cheers. Understand what you are saying now. I think we all agree that the impact on peoples net pay is less than the actual headline pension levy figure that public sector unions love throwing out.

 

[VOR]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Simply put on this website:
http://www.finance.gov.ie/documents/publications/other/2009/pensiondedtablemay09.pdf


From http://www.pensionsboard.ie/index.asp?locID=458&docID=500
Tax Relief Example: If you contribute € 100 per week to your pension and you pay tax at the higher rate (i.e. 41%), the net cost to you works out at € 59 per week. Additional Relief: Contributions will also be relieved from PRSI and the Health levy, if you pay these charges.

 

[Shawady]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Cheers. Understand what you are saying now. I think we all agree that the impact on peoples net pay is less than the actual headline pension levy figure that public sector unions love throwing out.

Absolutely, but pay cuts are as far as I am aware are always quoted on gross pay so if someone says their pay was cut 10%, their net pay would be reduced by less than 10%, depending on what tax band they are on.
I think it is also fair to say the same works with pay increases. The last pay agreement was 10% I think, so for someone like myself on the higher rate of tax, my net pay would ahve increased approx 5%.
The problem for the government is that it is an employer and collector of tax. If a private company cuts pay bill by 10%, they will save 10%. If the government does it, it will save 10% on spending but lose out a good bit on the revenue collection side.

I think this a problem the government is going to encounter if and when they cut PS pay.

 

[Sunny]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Absolutely, but pay cuts are as far as I am aware are always quoted on gross pay so if someone says their pay was cut 10%, their net pay would be reduced by less than 10%, depending on what tax band they are on.
I think it is also fair to say the same works with pay increases. The last pay agreement was 10% I think, so for someone like myself on the higher rate of tax, my net pay would ahve increased approx 5%.
The problem for the government is that it is an employer and collector of tax. If a private company cuts pay bill by 10%, they will save 10%. If the government does it, it will save 10% on spending but lose out a good bit on the revenue collection side.

I think this a problem the government is going to encounter if and when they cut PS pay.

I accept that. I guess my point is that despite the pension levy being introduced and I accept that it's faults we are still not even making a dent in the public finances and yet the Unions are saying that's as far as we can go.

This is an interesting document in that it outlines an analysis of net voted for expenditure by the Government. If you look at overall spending, it is down 1.3% year on year at the end of Spetember. The interesting thing though is that current spending is only down 0.7% while capital spending is down 13%. Current spending is only down 1% in both Health and Education. I can understand it is easier for the Government to switch off capital spending but it just goes to show what sate we are in if the Public Sector are already saying enough is enough and we have only managed to cut 0.7% off current spending.

http://www.finance.gov.ie/documents/exchequerstatements/2009/netvotedsept.pdf

 

[Purple]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Cheers. Understand what you are saying now. I think we all agree that the impact on peoples net pay is less than the actual headline pension levy figure that public sector unions love throwing out.

In fairness gross pay is all that can ever be used as different people have different allowances and deductions etc. AFAIK only soccer players work on net pay figures.

 

[orka]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

if someone says their pay was cut 10%, their net pay would be reduced by less than 10%, depending on what tax band they are on.
I think it is also fair to say the same works with pay increases. The last pay agreement was 10% I think, so for someone like myself on the higher rate of tax, my net pay would ahve increased approx 5%.

I don't want to distract from the debate but this isn't correct. If gross changes by 10%, the net change will be less than 10% but not much less (8%-9%).

As a simplified example, if tax was a flat 50%, someone earning 40,000 gross would take home 20,000 net. A 10% increase would increase gross to 44,000 and net to 22,000 - both are 10% increases even though one is a 4,000 increase and one is 2,000 increase. The structure of our tax system is not this simple and the progressive nature means that pay increases will pay more tax than existing pay - but the impact is still similar. I put some salaries into an online tax calculator and at a €40K salary, a gross 10% increase would feed through to a 9% increase in net. Even at a €200K salary, a 10% gross increase would give an 8.5% net increase.

 

[Shawady]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

I don't want to distract from the debate but this isn't correct. If gross changes by 10%, the net change will be less than 10% but not much less (8%-9%).

As a simplified example, if tax was a flat 50%, someone earning 40,000 gross would take home 20,000 net. A 10% increase would increase gross to 44,000 and net to 22,000 - both are 10% increases even though one is a 4,000 increase and one is 2,000 increase. The structure of our tax system is not this simple and the progressive nature means that pay increases will pay more tax than existing pay - but the impact is still similar. I put some salaries into an online tax calculator and at a €40K salary, a gross 10% increase would feed through to a 9% increase in net. Even at a €200K salary, a 10% gross increase would give an 8.5% net increase.

Orka, maybe I was not clear in my explanation but I was refering to the income earned at the higher rate of tax. I think anything over 34k is taxed at 41% so if someone earns 50K and they get a 10% increase they will now earn 55K gross. They would not get anything like 5K a year net.
I just checked my wage slips from last year and compared my pay slips around the time I received an increment. I just checked the difference in my gross increase and net increase after I received an increment. The net increase only represented 49% of the gross increase.

 

[orka]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Why would anyone want to know what their net € pay change was as a % of their gross? While gross pay and its movements are interesting (I earn 25K, I earn 45K, I earn 60K...), I think most people just care about net pay - that's what sends us all scrambling to the online calculators on budget day. All the budget stuff in the papers shows pre- and post-budget net pay (I used to get 1000 net, now I get 950 net - a 5% drop etc.).
I don't understand what you are saying TBH. When you say "The last pay agreement was 10% I think, so for someone like myself on the higher rate of tax, my net pay would have increased approx 5%.", what is the net pay increase (5%) a percentage of?

 

[Protocol]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

It seems that people may be confusing:

• the change in net pay in euros as a % of the former net pay
• the change in net pay in euro as a % of the former gross pay

Example

100k, get a 2% increase in gross to 102k.

The net pay increases by 1k due to marginal tax of 50%.

So net pay goes up by 1% of the former gross wage.

Old net = 70k
New net = 71k

Net up by 1.43% of former net wage.

 

[Shawady]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

Why would anyone want to know what their net € pay change was as a % of their gross?

This is the original question on the thread.
"Public Sector employees, does your, before tax, salary show a 7-8% cut or a 3-4% cut? (@55K)"
There seemd to be a query from the OP whether the pension levy related to gross pay or net pay. I was pointing out that although the pension levy for someone on 55K is 7.5%, that does not mean that their net pay is reduced by 7.5%. I think that was the thrust of the OPs question?
You are absolutely right - people are only concerned with net pay but the pension levy/pay cuts/pay increases are always quoted in gross terms e.g. 7.5% pension levy or 10% pay increase. So that if someone gets a 10% increase on gross pay, the actual increase may represent a much lower than 10% increase on net pay.
When I refered to 10% gross compared to 5% net, what I should have said that if someone on the higher tax rate gets an increase , they will only receive half of it in their net pay, rather than saying their net pay only increases by 5%.

 

[csirl]

Re: Public Service Employees, does your before tax salary show a 7-8% cut or a 3-4% c

You cant really generalise on this issue - different people have different personal situations which leads to different taxes. On top of this, the % cuts varied a lot from job to job in the public service.

No different to any employer - cuts are always a % of gross pay. Everything else is between the employee and the Revenue.