Finance Bill - Interesting Pensions Changes

[Gordon Gekko]

It's not below the tax threshold when the extra 2540 euro is added to the pensioners income next year. The overall amount of tax grab to the state may be negligible but to certain individual pensioners it is far from relatively small. 508 euro is not small charge to people on modest income.

If they’ve modest income, then they won’t be paying much tax on it, plus they’re more likely to want to access it.

 

[Marsupial]

It's not below the tax threshold when the extra 2540 euro is added to the pensioners income next year. The overall amount of tax grab to the state may be negligible but to certain individual pensioners it is far from relatively small. 508 euro is not small charge to people on modest income.

But they're not paying that tax from their income, rather they are receiving extra income (i.e. 4% of their augmented AVC net of tax). So they're actually getting more income, not less!

 

[Baby boomer]

If you have €50k in an AMRF, you can take out €2,000 a year as a once off lump sum. There's no going back for a 2nd payment in the same year. What if you are 70 years of age and can't afford to heat your house or fix your car? But you have €50,000 in a pension that you can't touch? What good is getting that money at 75 when you are broke now? What do they think they will tell you when you say "but you'll have all this money when you are 75"? I'm afraid Brendan's firewalls won't allow me to print what the answer would be!

Ok, so we've gone from a situation in which you can't touch the AMRF money to a situation where you're effectively forced to draw it down or pay tax on it as if you did.

What's so wrong with giving pensioners the choice? Draw down or not draw down, pay tax when you do, what's not to like about that?

You could have a situation where a retired sixty year old has an ARF, but which s/he doesn't need to draw yet, perhaps because of a part-time gig or whatever.

 

[Marsupial]

Ok, so we've gone from a situation in which you can't touch the AMRF money to a situation where you're effectively forced to draw it down or pay tax on it as if you did.

What's so wrong with giving pensioners the choice? Draw down or not draw down, pay tax when you do, what's not to like about that?

You could have a situation where a retired sixty year old has an ARF, but which s/he doesn't need to draw yet, perhaps because of a part-time gig or whatever.

Surely the retired sixty year old who doesn't need to draw down extra income could simply leave the money in their PRSA until age 70? That way they wouldn't have to pay any tax at all!

 

[Baby boomer]

Surely the retired sixty year old who doesn't need to draw down extra income could simply leave the money in their PRSA until age 70? That way they wouldn't have to pay any tax at all!

But then they wouldn't be able to draw down their 25% tax free amount! The optimum strategy might well be to take that immediately and draw down the rest as tax efficiently as possible. (Maybe wait until income drops below top tax band, etc.)

 

[Sarenco]

Surely the retired sixty year old who doesn't need to draw down extra income could simply leave the money in their PRSA until age 70?

They could actually defer drawing on the PRSA until they are 75.

Or they could split the PRSA in two and defer drawing on one PRSA until they are 75.

 

[bstop]

Conan, the example given is a pensioner aged under 75 with a reduced state pension of 12000 and ARF + AMRF.
Pensioner age 60 to 64 income as follows,....
Total income this year 16000.....no tax
Total income next year 18540....tax 508
The pensioner did not choose to take the extra income and may not want it.
Result government tax grab.

 

[Cavanbhoy]

Conan, the example given is a pensioner aged under 75 with a reduced state pension of 12000 and ARF + AMRF.
Pensioner age 60 to 66 income as follows,....
Total income this year 16000.....no tax
Total income next year 18540....tax 508
The pensioner did not choose to take the extra income and may not want it.
Result government tax grab.

IS not the first 18k taxfree for a 66 year old so tax wouldn't be 508

 

[bstop]

Yes you are right the tax grab would be 108 euro from that particular pensioner at age 65.
I have edited example to age 64.

 

[Steven Barrett]

Ok, so we've gone from a situation in which you can't touch the AMRF money to a situation where you're effectively forced to draw it down or pay tax on it as if you did.

What's so wrong with giving pensioners the choice? Draw down or not draw down, pay tax when you do, what's not to like about that?

You could have a situation where a retired sixty year old has an ARF, but which s/he doesn't need to draw yet, perhaps because of a part-time gig or whatever.

That has nothing to do with the AMRF, it is the ARF that has imputed distribution. And the minimum levels were imposed because people were using it for inheritance planning and not for retirement income. The Revenue said that pensions are to provide an income in retirement, if you abuse the system, we will impose minimum withdrawal amounts.

Again, the only people who complain about having to take money out of their ARF are people with lots of money. And it is more of a grumble than a serious complaint. It doesn't bother them that much. Of my clients with €2m ARF's, they withdraw their €120k+ a year, and the fund goes back up over €2m by the following year, so they are getting over €60k a year net and the value of their ARF is at least maintained. It's not an issue for them, they're not going to run out of money.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Marsupial]

Conan, the example given is a pensioner aged under 75 with a reduced state pension of 12000 and ARF + AMRF.
Pensioner age 60 to 64 income as follows,....
Total income this year 16000.....no tax
Total income next year 18540....tax 508
The pensioner did not choose to take the extra income and may not want it.
Result government tax grab.

Yep and that tax grab (sic) of €508 will make all the difference to our national debt of €250,000,000,000! Well done Paschal - problem solved!

Of course, if the pensioner doesn't require the extra cash then they can immediately reinvest it in (tax-free) long-term State Savings! And no management fee to pay! Win-win!

 

[bstop]

The tax grab of 508 euro makes a major difference to a low income pensioner.

If you think having a government forced withdrawal of 2540 euro from an ARF and then investing the after tax amount of 2032 euro at 1% per year is a "Win-win!" deal for a low income pensioner, I certainly would not want to be getting any financial advise from you.

 

[Conan]

The tax grab of 508 euro makes a hugh difference to a low income pensioner.
I would guess that you have no experience financial hardship.

If they are a “low income pensioner” then I suggest they would welcome the additional income, even if they pay a small potion in tax (20% of the AMRF drawdown).

 

[bstop]

I would suggest that if they wanted extra income they could choose to withdraw extra from their ARF. If they do not, I would suggest that that a government forced, taxed withdrawal is an unfair tax grab.

 

[Steven Barrett]

I would suggest that if they wanted extra income they could choose to withdraw extra from their ARF. If they do not, I would suggest that that a government forced, taxed withdrawal is an unfair tax grab.

...or they may not have an ARF at all, only an AMRF.

Your arguments are very weak and back up by nothing but supposition.

 

[bstop]

Steven, if you read through my previous posts you would see that I am referring to the situation next year when the pensioner will no longer have an AMRF. If you want to continue to comment on my arguements get your facts right first.

 

[Marsupial]

The tax grab of 508 euro makes a major difference to a low income pensioner.

If you think having a government forced withdrawal of 2540 euro from an ARF and then investing the after tax amount of 2032 euro at 1% per year is a "Win-win!" deal for a low income pensioner, I certainly would not want to be getting any financial advise from you.

Well, seeing as you insist that your imaginary pensioner (whose low income, remarkably, is taxable at 20%) doesn't need the extra money, where would you recommend that they invest it? Paddy Powers? The off licence? Magic beans? (Dolphin Trust? )

 

[Gordon Gekko]

This is a circular argument.

If they’ve low income, then their income is either not taxable at all or hardly taxed.

I can’t think of any real-world scenario where someone would be bothered by this.

 

[Sarenco]

Pensioner age 60 to 64 income as follows,....
Total income this year 16000.....no tax
Total income next year 18540....tax 508
The pensioner did not choose to take the extra income and may not want it.

In the real world, I would be very surprised if any early retiree with an annual income of just €16k would defer drawing down an additional €2,540pa from their AMRF simply to defer a relatively small amount of income tax (€308pa when you allow for tax credits).

 

[bstop]

In the real world, some financially astute people on small to moderate incomes with an ARF or AMRF who can choose their total income level by varying their yearly withdrawals, do actually set their total income to exactly match the tax free income threshold or to maximize their 20% tax band level. I know people who do this and I have helped them to calculate their optimal income level. These people are very appreciative of any tax saving and the 308 euro that you have correctly calculated would be of greater value to them than to Revenue.
No doubt you will be surprised to learn that people like this do actually exist.