My understanding is that it’s taxable like any other PAYE income.
Report - Pension SFT increase coming
- Thread starter yellowmoose
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See my previous (subsequently edited) post - seems like it may be subject to income tax and USC but not PRSI?
I don’t see why it wouldn’t be subject to PRSI if you are under 66.
Regardless, my point is that I wouldn’t continue to contribute to a pension if the tax relieved is less than the tax payable on drawdown.
No, but that's on anything over €2 million (soon to be €2.8 million).
No, as things stand, the standard rate of tax applies to lump sum payments between €201k and €500k.
My question is whether or not the €500k figure will rise in line with the increases to the SFT.
If not, then I don’t see the logic of contributing to a pension once you hit €2m - notwithstanding the increased SFT.
Do not expect lump figure to rise inline with increased SFT
Looking at the document linked by yellowmoose in post #5 (I cannot add links)
Last line of section 3.5 p20
While the general tax treatment of lump sums falls outside of the scope of this report, taking into account the Commission on Taxation and Welfare recommendation, it is recommended that there is no automatic increase in the limits applying to a lump sum payment.
Gordon Gekko
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Yes, the plan is to cap it at €500k (rather than 25% of the SFT). So €2.8m will still mean €500k under the old rules.
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That's a DB pension? People on large DB pensions must have high (even if nominal) funds, clearly they'll benefit from the SFT change, it's being changed for people like them who go past the fund limit because their employer is either in reality or theoretically funding their pension in relation to their salary not in relation to the where the SFT is.
If you're funding or mainly funding your own pension (the vast majority of us) - then you will hit the contribution brake yourself in the unlikely event you have to. Many high earners will be balancing investment inside and outside of pensions anyway. This is just one other factor.
While I've not seen CSO figures for last year, anyone on 130k probably is in the top 10% of earners. Most of the other 90% would likely consider them high earners.
No, originally there was no 25% tax free lump sum on occupational pension schemes
Gordon Gekko
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Is it not (typically) better though because the tax break leverages the investment?
I lob in €60, the State lobs in €40, the €100 is long the market for decent period of time, and I pay 52% (probably 48%) on drawdowns.
But, on average, I’m probably, usually, only paying tax on additional incremental growth each year. e.g. ARF goes up by 5% and I withdraw 4%.
As an aside, the 6% drawdown will apply to the €2.3m ARFs created by this change. 7% including management fee is a hefty enough hurdle rate.
You'd need a fund of €2m for that
It was 25% of the SFT, but the government have been known to break this sort of link in tax before.
Exactly, 20% of €300k is €60k.
There was no tax on the first €200k. Therefore the tax paid on the first €500k was 12%.
Based on the other thread in relation to CAT and inheritance, is the tax breaks being given to people with large pension pots a good use of scarce resources?
Is that regardless of any income you had in that year? i.e. I work till July and early €40K, retire, take my €200K tax-free is the next €50K still only taxed at the standard rate?Yes (I presume you meant €50K).
Taxation of retirement lump-sums
This page outlines the taxation of an excess lump-sumwww.revenue.ie
I think that the pension lump sum taxation is dealt with in isolation from any income earned in the same year.
Yes. Your salary is taxed under schedule E. The 20% taxed pension lump sum is under Case IV Schedule D and is separate.
Certainly from my perspective they could not be more different.
By definition CAT relief would benefit people who have done nothing for the money.
Pension relief is only available to those contributing tax on their income, and in the case of €2m fund, people contributing tax at 52%.
In addition, the marginal increase in SFT from €2m to €2.8m (I.e. the extra €800k) is all going to be taxed at 48% on drawdown. So the state will actually collect 8% more tax (40% relief at source, 48% tax on drawdown) on this money than they would have otherwise. The benefit for the individual is purely in the deferral of the tax and the roll up of gains in the fund.
That benefit largely (maybe completely) vanishes when you consider the 6% imputed distributions on values over €2m.
Fibbernacci
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Is there any chance of increasing the amount of tax free contributions from the current 115?