Disagree with the new pension levy

Duke of Marmalade said:
An ARF is an alternative to a pension, there is absolutely no grounds whatever that ARFs should be spared the levy.
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An ARF is not an alternative to a pension policy.

The investment of an ARF comes from a pension policy, i.e. it's a post retirement policy, the same way as an annuity is.

ARF holders have to take an income of 5% per annum, and pay tax, USC & PRSI on this income. Even if they don't take an income, Revenue will assume they have and tax them anyway.
 

My understanding is that an ARF is not a pension. For example, in a bankruptcy scenario an individual's creditors can go after his ARF. If an ARF isn't a pension, why should it be subject to a "pension levy"?

I'm not an apologist for those with ARFs...it's just a question of logic.
 
I heard R Bruton on the radio today defending exemption of ARF's on the basis that they pay tax at 5% per annum on the fund value.

He didn't seem to understand that tax is paid at marginal rate on 5%.
This was the previous Finance spokeperson for Fine Geal.

Jack O'Connor was also very hazy when he was talking about the whole pensions area on the same show.
 
I'm not in favour of this tax, but some of these postings display an amazing sense of irony. Fact is that the fund-managers and advisors who are screaming about the unfairness of this levy charged far more than 0.6% for the "management" and advice that resulted in losses to the same funds many orders of magnitude greater than what is now proposed. Shane Ross has it perfectly right. The incompetents who lost our money, not their victims, should be made to pay this tax.

Some genius even feigned concern that this levy would discourage ordinary people from saving! That horse fled the stables long ago. Ordinary people have been fleeing the products being flogged by this failed industry, and not because of tax. they are opaque, wildly over-priced, risky, and incapable of assuring a predictable value at the chosen time of retirement. Most of all, they are just plain bad-value. The only reason they survive is that the enormous tax-payer subsidy disguises the losses and high charges. Their only function for middle-income people is tax-minimization rather than providing for retirement. Ther are irrelevant to people of modest means. With the economy in its present straights, the exchequer can't afford to subsidize this codology.

A modest proposal. We should allow everyone to nominate an ordinary deposit account which would be designated for their pension. Once designated, payments into this account up to a set threshold would be dirt-free. The income invested (to the current maximums) would be tax-exempt. Each financial institution would be required, once the account is designated to apply an interest rate and charges not less than those applying to the best rate and lowest charges currently on offer in respect of any of their term deposit accounts. Nothing to manage or administer (more than any other deposit account). No fees and charges. No unpredictability. No crashes. probably a better net return than the disasterous products currently on offer. Any takers? What about the credit-unions?
 
Your suggestion is a sensible one. Individuals can already do this with deposit based pensions, but the mechanism you've outlined would be far more accessible and transparent.
 

And availed of huge tax benefits from the state . My heart bleeds for you.
 
I wish you were correct, I think Old Age Pensions are not exempt - any pension above the State pension I think is liable.
Browtal
 

Don't forget though to take inflation into account. In real terms your proposal would result in very poor returns.
 
browtal said:
I wish you were correct, I think Old Age Pensions are not exempt - any pension above the State pension I think is liable.
Browtal
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It's just the pension fund that is going to be levied. Any pension already in payment (annuity) is not being levied
 

I think your heart is in the right place on this but there are four strong points I'd like to make:

1) There is the conundrum that when you are saving for up to 40 years for retirement, deposit account returns may not be appropriate as you are running the risk of your returns being seriously eroded by inflation. Over long time periods you need some form of investment that will not be eroded by inflation. This means investment linked bonds or equities and unfortunately means short term volatility is inevitable. The likes of Shane Ross knows this but is happy to throw stones from the sidelines during the inevitable periods of poor returns, labelling the whole industry inept because global equity markets perform badly. This is very cynical and not helpful to a better understanding of optimal long term investment decisions.

2) The pensions industry is one of the most competitive industries we have. Irish Life, Bank of Ireland, Aviva and Zurich are in the midst of a price war. Customers have been consistenttly getting more competitive terms over the last 4 years to the point that Aviva does not even make a margin on new business these days. They are all engaging in cost saving exercises as the market will not tolerate anything other than competitive pricing.

3) The pensions industry is one of the most regulated and safe industries we have. If you invest money it is ringfenced and invested appropriately e.g. if you invest your pension in a cash fund, your money is set aside in cash. The regulatory oversight involves much prudence. There is irony in your suggestion that bank deposits would be a better option for people's pensions. If you hadn't noticed, the banks require tens of billions of state aid just to honour the money they owe to depositors due to insolvency and over a hundred billion more in ECB liquidity due to poor cash flow matching.

4) Let's say the pension providers had made tidy profits in the past. Who is the main beneficiray of this now? The state. Irish Life and Bank Of Ireland Life will probably contribute €2.5bn towards offsetting banking losses in the next couple of years.

So you and Shane Ross can stand on ye're soap boxes ridiculing the industry all you like for whatever personal reasons you may have, but I don't think you are being fair in who you call inept.
 
An ARF is an alternative to a pension, believe me, I was offered that alternative when I retired. Regrettably I took the pension. The 5% per annum is a complete red herring. People who take a pension instead of an ARF are also "forced" to take an income from their fund i.e. their pension. They also pay income tax and USC on this income.
THERE IS ABSOLUTELY NO DIFFERENCE.
Of course if someone is foolish enough to refuse their 5% income then they will pay the tax anyway but this was merely a device to force them to take the income. Nobody, but nobody is refusing their 5% income.

It is beyond belief that RTE, Richard Bruton and others do not understand this.

I agree that technically ARFs are not called "pension" funds, they are called "retirement" funds. So because the announcement only mentioned pension funds we are told that retirement funds are not in scope. Please pinch me for I can't believe this nonsense.

BTW I am aware of an ARF worth over €70M (this was in the public domain) and there are quite a few of these. Remember this is an ARF for one person. It is to be exempt because it is not technically a pension fund, it is a retirement fund. But I'll tell you what it really is, it is inheritance planning, so mega inheritance planning is to be exempt whilst Jack O'Connor's ordinary working man is to be in scope. Next time I'm voting Sinn Fein.

Sorry for rant. Please feel free to transfer to LOS.
 
First of all government does not have its own resources it only has what it takes from the economy. Secondly the government is not using its resources when it allows people to keep their own property, nothing is being given to someone paying into a pension. When government "helps" people through direct payments it does so by taking money from one group of people and giving it to another. There is a fundamental difference in allowing people to keep what is theirs and giving to people something that is not theirs.

I fundamentally disagree with you. What people earn, in whatever way that may be, is their private property. The only organisation that can legally take some of the private property away is the government. By your argument 100% of GDP is government property, and only by the grace of government are we allowed to keep some of that by having less than 100% taxation. But that is of course a ludicrous suggestion. Uninterfered private property rights are one of the most important reasons why the western world managed to get itself out of the constraints of serfdom and mercantilism and prosper in the way it did.

Your suggestion would make sense if upon exit the percentage of tax were reduced. What you are also not accounting for is the loss in compound gains on the 2.4% taken out of the pension pot. Assuming a pension pot of €100,000 and 25 years to retirement, the levy will take out €2400. A modest return of 6% per year will mean €10000 less in pension value after 25 years. The government is not just reducing wealth by the small sounding 0.6%.

Regardless of how good or bad fund managers have done, they are providing a direct service on a product that people are free to sign up for. The government levy on the other hand is not voluntary and the government do nothing to add to the value of the fund.
The fact that many funds are down and that that somehow reflects badly on the managers in general is not a good way to judge performance. A fund's performance should always be looked at in relation to an index. A stock fund could be down 30%, but if the stock index is down 40% then the fund manager did a good job.
Any extra charges levied on fund managers will simply be passed on to customers.

If you want predictable value for your pension investments you can always choose a cash or bond fund. The level of risk of individual funds is usually very clear and people can choose what level of risk they want to take. I also disagree that private pensions are generally bad value. Yes, some providers charge you on payments going in and then a management fee, but there are brokers that will void those charges.
As already stated, no money is being handed over from government to the pension investor so it is not a subsidy. Could you also clarify how you come to the conclusion that a private pension is not a form of "providing for retirement"?

You can already do this by allocating pension contributions into a cash fund.
 
Protocol said:
6.5% is the normal public service pension cont rate.
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Actual contribution's are 1.5% of gross salary, 3.5% of net pensionable income for employees hired after April 95, however their salaries are increases by 20/19 to compensate them because employees hired pre 95 there is no explicit contributions except for 1.5% of salary for spouses and childrens scheme. So we were both wrong
 
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I am personally in favour of removing all tax reliefs and incentives on pension benefits - which would by extension mean the imposition of BIK on employer contributions (actual and notional). Failing that, I think the numbers DerKaiser gives above could be used as a framework for maximums limits/benefits. Tax relief stops when a fund reaches 750K (index-linked); and employer incentives/reliefs won't apply for pension provision exceeding 40K. So if someone is earning 150K, their employer can provide whatever pension they want but funding above 40K won't be tax-deductible for either employer or employee.
 

Duke, so you agree that there is no difference between an ARF and a Pension in payment (Annuity)? Annuities are not going to be subject to the levy, so why should ARFs?


Of course if someone is foolish enough to refuse their 5% income then they will pay the tax anyway but this was merely a device to force them to take the income. Nobody, but nobody is refusing their 5% income.
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Not true, some ARF clients either just don't bother to take an income from their ARF (i.e forget to), or they choose specifically not to.

To say that 100% of ARF policyholders don't take an income is incorrect. Why then do QFMs make imputed distribution returns to Revenue every March (based on values at previous 31 December)?
 
boaber said:
Duke, so you agree that there is no difference between an ARF and a Pension in payment (Annuity)? Annuities are not going to be subject to the levy, so why should ARFs?
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Yes ARFs are equivalent to pension annuities are equivalent to DB pensions in payment. Yet it seems only the last of these (Jack O'Connor's working man) will be in scope whilst the two others (mainly the well healed) will be exempt.


Don't mean to offend but you are being silly here. ARF holders have a choice to take 5% and pay tax just like other pensioners or they may chose not to withdraw the 5% but still pay the tax. DB pensioners do not have that choice. If some ARF holders do chose to pay the tax but not make the withdrawal I presume that they reckon that this is a long term better strategy possibly as part of inheritance planning.

Can you at least admit that RTE and Richard Bruton have got this seriously wrong? I have no problem with you arguing for ARF exemption but please, please, not on the basis that they are more highly taxed than DB pensions in the first place.
 
Duke of Marmalade said:
Can you at least admit that RTE and Richard Bruton have got this seriously wrong? I have no problem with you arguing for ARF exemption but please, please, not on the basis that they are more highly taxed than DB pensions in the first place.
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It sounds like they got mixed up with imputed distribution and deemed disposal! you have a point.

DB schemes are being put at a disadvantage in that they must pay on funds belonging to pensioners, but then again many DB schemes are underfunded and will benefit in this way relative to DC schemes.

It's going to be a hard call for a trustee as to whether they can get the employers to take a hit (probably not) and how the members will pay for it - you could theoretically exempt the pensions in payment and layer it on to the employee contributions or reduce the accrued benefits of non-pensioners.

To be honest, the active pensioners on DB schemes benefit from some pretty serious advantages aside from this in terms of being immune to investment conditions and far up the pecking order for underfunded schemes.

By the way, DC annuitants are not necessarily a well off cohort relative to DB pensionsers. And, at the end of they day, you do have the option to buy out an annuity.
 
This is way too complicated. How did anyone dream up something that cannot be easily calculated or understood. One does wonder how the best brains in the government and the Dept of Finance have put this together and managed to make what seems like an absolute shambles which has everyone up in arms. The administration of it alone looks like a lot of effort in time and therefore money.

Wouldn't it just be easier to raise more money, taxes, as we certainly need to, by just increasing the tax rates. Say a new tax band of 1% for everyone earning over a certain amount.

How much is this new pension levy supposed to raise and just put it on income tax for those that can afford to pay it.

Duke can I ask you a question to try and understand your fury. How much is the tax/levy actually going to be for you? To get a better idea of how much this actually is for a pensioner.
 
DerKaiser I agree that this is going to be hugely problematic for Trustees.

1) If they lop it off pensions in payment only that will be patently unfair as they will be paying for the active members' share.

1) If they lop it off pensions in payment only but at a straight 0.6% p.a. that will still be more than their actual share, if the fund is in deficit. On the other hand it won't be enough because it will not pay for the levy on the active members' accrued benefits.

2) If they do not touch any benefits and the fund simply goes into more deficit then I agree that the preferential treatment of pensioners on a potential future wind-up would leave active members even more disadvantaged if that scenario came to pass. Seems to me the legislation should provide that on subsequent wind-up pensioners entitlements could be reduced by any effect of levies taken in the past.

3) It seems that the closest to a fair treatment is to lop it off all accrued benefits and benefits in payment in proportion to their actuarial liability. Could be pretty messy.
 
I think it's quite clever. They getting their hands on a pot of money that people can't access now anyway (unless you cash-in their pension and suffer a big loss)...it is not a direct grab as would be felt by tapping deposits. I don't agree with it at all btw. One more reason not to invest in a pension...
 
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