A person should be allowed to borrow the deposit for buying their home from their pension fund

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Boss I understand that borrowing from oneself is much more economical than borrowing from a bank. I just can't see how borrowing from oneself is superior to withdrawing the cash. In fact it only adds complexity and cost.
 
Brendan Burgess said:
This is already happening but in an indirect way

A person has a pension fund worth say €200k.
The same person has a mortgage of €200k.
So they are borrowing at 4.5% to invest in a pension fund which is paying very little.
In many cases, the pension fund is just buying mortgage backed securities from the same bank.

It's like going into Bank of Ireland and taking out a loan at 4.5% only to cross the road to AIB and put in in your current account.

Brendan
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Very interesting example Brendan. Both very worthwhile endeavors, owning a house and providing for the future when you can't work any more. But both putting a strain on your finances perhaps. A guaranteed return of at least 4.5% on the mortgage side and probably an unpredictable return on the pension side.
But if you add in the tax deferral(or complete avoidance) aspect of paying into a pension the pension even if it's not really performing that good is like getting an interest free loan from the state.
 
Duke of Marmalade said:
Boss I understand that borrowing from oneself is much more economical than borrowing from a bank. I just can't see how borrowing from oneself is superior to withdrawing the cash. In fact it only adds complexity and cost.
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Duke

Distributions from a pension are taxable as income. I'm pretty sure that's not part of Brendan's proposal, hence the idea of a loan that would be repayable (with interest) from after-tax income (like any other loan).

Apparently the interest payable on the loan will be below market so there's the subsidy from the taxpayer. Mind you, if defaulting on the loan does not crystallise a tax liability that may be academic.
 
Sarenco said:
Hi Brendan

If I understand you correctly defaulting on a loan from my pension does not crystallise a tax liability under your proposal, right?

:)
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Defaulting on a loan equals a withdrawal. So yes it should be taxed as a withdrawal. But amazingly and totally unrealistically withdrawals are in fact tax free. The fact that benefits are tax free is a very fundamental fault in this strawman. He should be burned.
 
Sarenco said:
Duke

Distributions from a pension are taxable as income.
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Apparently not under this proposal. Unbelievably and totally unjustifiably under this proposal all benefits are tax free. So if you borrow your whole fund and default you have enjoyed no tax arbitrage as the benefits would have been tax free anyway.
This whole proposal is a nonsense because of the TEE tax treatment.
 
Hi Sarenco

Your fund would be compounding interest on the loan so it would not be losing out.

You couldn't trade up because the mortgage would have to be cleared when you sell your home.

If the system can be gamed, but I am not sure that it can, then it could be restricted in some way. But I don't see the necessity.

Brendan
 
The TEE thing is a nonsense. That only came to light this week and cannot survive the straw man stage. It is actually EEE and not TEE.

My proposals work under the present EET pensions and would work under an EET auto-enrolment system.

If the pension system is changed to EEE which is what the auto-enrolment straw man is suggesting, then some safeguards would have to be built in against default.

Brendan
 
I Think we need to be looking at pensions plans in the EU rather than on the other side of the World, I know my daughter who is self employed in austria she can put money into a pension and Get tax relief the money is used within austria and can be taken out a few years later tax free there may be a poster on hear who understands how the system works

Austria have a few systems when it comes to buying and renting which may well work in Ireland and fit in with the pension discussion on hear,

If you were thinking of buying a house in Austria you would start saving at least six years in advance ,Not sure how it work's but there is some system in place where you need to show saving over six years to be sure of getting a mortgage,

They renting/building arrangement for the most part is built around this six year time frame in other words you would be renting in an area where you were expecting to buy so there is time to plan house building within your Budget if there is not enough houses for the required people saving I suspect they will get Built, (not explained well but hope ye can follow what I am saying)

The Renting arrangements leading up to buying is very Interesting you would be renting for the full six years in most cases rents and increases would be agreed at the start ,
The deposit is larger than the longest known time its takes the local court system to evict tenant ,

The Deposit is lodged in a investment account by landlord until end of lease if all is in order deposit + interest is returned to tenant,

Mods remove post if found to be of no interest,
 
Brendan Burgess said:
Your fund would be compounding interest on the loan so it would not be losing out.
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So my fund would be earning interest that I never intend to collect? That's just an accounting nicety.
Brendan Burgess said:
You couldn't trade up because the mortgage would have to be cleared when you sell your home.
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Why would I need a mortgage? I would just fund the house purchase out of my tax-free pension loan that I never intend to repay, plus the equity that I realise in my current home. Even I did need to take out a mortgage, why would I ever repay the loan from my pension?
Brendan Burgess said:
My proposals work under the present EET pensions and would work under an EET auto-enrolment system.
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Well, it only works if the exchequer is prepared to take a massive hit.
 
Brendan Burgess said:
I am not sure why people have a problem with allowing generous tax reliefs for pensions but not allowing them for buying a home.
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Because it is perceived that there is a limited housing stock. If one person gets a tax break to buy a house, that disadvantages another person trying to buy the same house.
 
Sarenco said:
• What happens if the loan isn't repaid in accordance with its terms? Does the full amount outstanding (including accrued interest) become taxable income in the hands of the borrower?
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Logically the arrears of interest should be taxable income.

If capital repayments of €10k and interest of €2k were due in a year and went unpaid. That means the borrower has taken €2k from his pension for an unapproved purpose and so should be taxed as income.

Some tax penalty should also apply to the arrears of capital.

Interest on the arrears of capital should also be seen as taxable income. The benefit to the borrower of not repaying the capital i.e. the interest
 
Duke of Marmalade said:
Apparently not under this proposal. Unbelievably and totally unjustifiably under this proposal all benefits are tax free. So if you borrow your whole fund and default you have enjoyed no tax arbitrage as the benefits would have been tax free anyway.
This whole proposal is a nonsense because of the TEE tax treatment.
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My latest understanding is that in fact the tax treatment of drawdown has not been decided, neither have any other details relating to drawdown. The Department of Finance will have the final say and it seems to me that the benefits will finish up as being taxable in the exact same way as for other pension arrangements.

This would make AE inferior from a purely tax angle to other pension arrangements for higher rate taxpayers. My suggestion is that AE should apply only to the income between the Basic State Pension and Standard Rate Cut-Off. This would solve two problems. Firstly it would dovetail from a tax perspective with existing other arrangements. Secondly it would avoid the trap where on getting a rise that brings you into the AE net you get a cut in take home pay.
 
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