RETIRED2017
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They usual suspects will having a problem dealing with this post they cannot pigeon hole the Duke in as a left winger ,
The Duke in no dog in the manger no time for the penny looking down in the ha'penny ,
Relief for pensions contributions has its origins in the concept that you can only charge income tax on disposable income i.e. you can't get blood out of a stone.
Thus everybody was allowed certain reliefs for the basics of daily living and these personal reliefs would broadly align with personal circumstances such as marital status and number of children.
But also things like mortgage interest, indeed any interest, life assurance premiums, private health insurance and other medical expenses and pensions contributions were deducted from gross income in order to determine disposable income. In this way relief was naturally at the marginal rate and also the more you paid towards these costs the more you benefited from the relief.
This scaffolding has largely been dismantled. Life Assurance Premium Relief is long gone as is relief for interest on ordinary loans. Mortgage interest relief is much restricted. Medical expense relief is at the standard rate.
It leaves pensions relief looking starkly as a regressive subsidy whereas it did not originate as an attempt by the State to provide such a subsidy.
This will be an interesting aspect of any move to standardise relief. For non-contributory or non-funded schemes, there is no explicit contribution but there is a benefit accruing each year. Revenue doesn't need to look at this at the moment because there would be full tax-relief of any accrued benefit (although PRSI/USC should probably be payable). But if there is a move to standardise relief, high rate tax-payers should have to pay benefit in kind on their employers contributions - both actual and notional. The issue was already identified in the tax commission's report:The contrast in treatment with those who benefit from very generous occupational pension entitlements is stark.
page 374 [broken link removed]The regime for non-funded pensions should be examined to identify the implicit tax cost to the Exchequer in the context of an equitable distribution of the tax expenditure on pensions.
The fact remains though that standard rate tax relief is not an attractive incentive to lock one's spare cash away for 20-40 years in a risky pension fund, when the attendant costs and charges are factored in. For lots of people, it still isn't attractive even with the 40% tax relief. Cut that to 30% and it will be attractive to fewer still.
I suspect you are correct in saying there are
I think there are very few non funded schemes open to people on the the average industrial wage which is where pension tax relief need to be aimed if you look at what is left of the pre 1995 public service pension they now have to pay the pension levy along with what ever they were paying before the pension levy came in,This will be an interesting aspect of any move to standardise relief. For non-contributory or non-funded schemes, there is no explicit contribution but there is a benefit accruing each year. Revenue doesn't need to look at this at the moment because there would be full tax-relief of any accrued benefit (although PRSI/USC should probably be payable). But if there is a move to standardise relief, high rate tax-payers should have to pay benefit in kind on their employers contributions - both actual and notional. The issue was already identified in the tax commission's report:
page 374 [broken link removed]
I don't know quite what point I was making. Originally pensions contributions were regarded as quasi essential expenditure as was life assurance and health insurance and expenses. Therefore they ate into truly disposable income and it was only this latter which was regarded as fair game for income tax. It wasn't that the State was encouraging or subsidising folk to incur these costs it was simply that prudent man (or woman) couldn't avoid them.They usual suspects will having a problem dealing with this post they cannot pigeon hole the Duke in as a left winger ,
The Duke in no dog in the manger no time for the penny looking down in the ha'penny ,
Yep, tax is a big deal. The question is - is it is a bigger deal using tax subsidised supplementary pensions or providing for your pension through the third pillar, i.e. making your own pension provision. I think the second pillar is superior, i.e. the tax system is subsidising private pensions.My plan is to contribute the maximum over a 30 year period. That’s €900k of contributions at a “cost” of €360k to the Exchequer. I estimate that the pot will be worth circa €3m at retirement.
Based on current rules, the State will get Chargeable Excess Tax of €340k and tax of €60k on my lump sum when I retire.
Then I’ll be compelled to take 6% per year from my ARF which will equate to circa €130k a year, all of which will be taxable at the 40% rate; that’s €52k a year of tax, nevermind USC.
My wife can inherit my ARF intact, so there’s a strong possibility that the State will get circa €52k a year every year for circa 30 years; that’s around €1.5m in tax.
Then when the last of us kicks the bucket, having spent 30 years trying to at least preserve the nominal value of our ARF, the State will get 30% of its circa €2.15m value from our kids, i.e. another €650k of tax.
So the State foregoes €360k and makes around €2.5m. Even taking the time value of money into account, the State is quids in. Why? Because I take its money and handle it better than the State would by investing it.