"Is it time to reduce the tax-free lump sum of €200k?"

[AJAM]

They eroded trust already with the pension levy.

That was a straight-up heist. But at least there was an actual (close to existential) crisis to justify it.

Also, if it really only effects a tiny minority of people, then by simple math, it can't be significant source of tax revenue!

I'm not claiming my maths are right here but as a rough, back of the envelope, calculation
From this quote on RTE.ie ""The number of retired people in Ireland increased by almost a fifth between 2011 and 2016 to 545,407." We can assume 90,901 added over 5 years, so 18,180 per year. But that ignores deaths, so from CSO we had 7,398 deaths in Quarter 4 2020. So assume roughly 29,000 deaths per year, implies roughly 47,000 people retire in Ireland each year. Only half will have private pensions - 23,500
If the 200K limit affects 1% of those it would be 235 people.

If you decrease the limit from 200K to 150K, that would be 20% tax on 50K = 10K
10,000 from 235 people = 2.35 Million which is roughly what the government spent on their fancy new printer.

Now I've made a few assumptions there, so I'm sure the figure is wrong, but ballpark, it's not big money!

 

[Zenith63]

From an investment point of view I think something like the Roth IRA that they have in the states where you can invest after tax income and it will grow tax free makes a lot of sense to encourage people to invest more if they have already maxed their pension contributions. In that case the govt. gets my income tax and I get a bonus for investing some of my take home pay without being taxed a second time.

The total amount you can have tax-free in a pension (€2m) is already fabulously generous, anybody with that amount is at the top of the wealth distribution curve. So rather than allowing further tax free savings mechanisms, perhaps allowing people access the existing mechanism (pensions) at the time of their life that suits them income-wise, rather than enforcing obscure age-related limits would be quicker/cheaper/easier to implement than ISA/IRA schemes?

 

[kinnjohn]

They eroded trust already with the pension levy.

Tax on pension assets

Tax is generally not charged on the investment income or capital gains earned by pension funds...

www.pensionsauthority.ie

Are you forgetting the first proposal was to put a levy on pension fees The nice people in the Industry lobbied the government of the day and got it changed to the pension pot at the bottom of the cycle,

 

[Steven Barrett]

As a personal finance novice currently in the process of wrapping my head around pensions/investments etc., one of the things that I find really puzzling is the Irish Government's approach in terms of seemingly throwing up barriers down every avenue that one might pursue for wealth building. Surely it would be of long term benefit to the country if people were independently wealthy in retirement, thus removing any burden upon the state.
It's as if the Revenue want to tax you before you've even made the money - i.e. deemed disposal. Places like the US seem to have some very straightforward vehicles for the average Joe to fund on a monthly basis with excellent incentives attached - and why shouldn't working hard all your life and saving your money to be self sufficient be rewarded?
Is it simply the case that governments are short sighted and just want tax in hand asap rather than taking a long-term view (beyond their own careers perhaps)? Or am I missing something?

Florida and Texas have no state income tax either. Why hasn't everyone moved there?

Different countries have different tax rules. You can't just pick the best bits. If you are, why not also look at kids finishing college with hundreds of thousands of college debt (which they owe to the government) or if you get sick and don't have insurance, getting treatment can bankrupt you. Or you have very few employee rights and can be fired immediately with no redundancy payments. The grass isn't always greener on the other side.

 

[noproblem]

Florida and Texas have no state income tax either. Why hasn't everyone moved there?

Different countries have different tax rules. You can't just pick the best bits. If you are, why not also look at kids finishing college with hundreds of thousands of college debt (which they owe to the government) or if you get sick and don't have insurance, getting treatment can bankrupt you. Or you have very few employee rights and can be fired immediately with no redundancy payments. The grass isn't always greener on the other side.

Might not be always greener, but it's damn nice watching some individuals finding that out the hard way

 

[NoRegretsCoyote]

If you decrease the limit from 200K to 150K, that would be 20% tax on 50K = 10K

I think your assumptions are a bit off but, yes, the median pension fund at retirement is well below €800k. It is only the wealthy few who can fully take advantage of the TFLS .

If the Exchequer wanted to raise significant meaningful amounts they would need would need to reduce it to at least €100k, probably even lower.

As @Sarenco says, you could only do this in conjunction with the overall personal income tax regime for retired people. In my view it is generous enough already though.

 

[thunderin_eejit]

I think these sort of discussions, or even ideas being floated, are incredibly damaging for confidence in pension saving. We seem to think it's acceptable to have continuous fiddling with pension rules, despite these being products which may have a 30 or 40 year lifespan. We are also asking people to lock funds away without the ability to remove those funds if the rules change. As was said above the pension levy could at least be argued to be an emergency measure, but any significant changes to other pension rules just because the government of the day thinks it is a good idea should be discouraged, or else flagged well in advance (decades).

There's plenty of people who have made plans for the TFA - and often this is to fund significant expenditure such as clearing mortgages or funding deposits for kids etc. You can debate whether or not it is a good idea (and I think it is a huge selling point in favour of pension saving), but these sort of discussions are inevitably going to fuel distrust in pensions and long-term savings.