LDFerguson
Registered User
- Messages
- 4,663
This always leaves me wondering what is wrong with the Irish/UK funds, that they can only sell themselves as tax schemes??? I mean most mainland European countries offer tax credits for pension contributions, allow certain lump sum withdrawals, and tax the pension as income when you start to draw it down... so what am I missing???
There's plenty of non-pensions business in Irish/UK funds, but pension vehicles are a huge part of the market also.
Once the decision has been made to save disposable income, the big decision in Ireland/UK is whether to save for retirement using non-pensions savings vehicles (contributions from net of tax income, funds subject to exit tax on gains only) or to use pensions vehicles (contributions tax deductible, funds roll up gross of tax but proceeds are subject to income tax).
It has become less clear of late that the benefits of tax relief on contributions and tax free investment income/fund growth will always outweigh the taxes payable later due to the fact that pension proceeds are treated as taxable income.
Finally you have to look at the fact that the savings proceeds are tax free whilst the pension income will be treated as taxed income.
I had pretty much decided not to do any future contributions because of the issues discussed in the article - that there may actually be a tax cost in the long term if you contribute to a pension scheme - but the reason I will definitely never put another cent into a pension product is the 0.6% government levy being applied for at least 4 years. This has the same effect as a permanent 2.4% income tax surcharge when I draw down the pension and there is absolutely no way for me to avoid it on my past contributions. I can, however, ensure that the government don't get the chance to steal my future pension savings by keeping them in easily accessed investments that can be moved if necessary. A levy on locked-up-for-30-years pension contributions was such an easy steal for the government that it's hard to see them not keeping the levy going indefinitely.
This always leaves me wondering what is wrong with the Irish/UK funds, that they can only sell themselves as tax schemes??? I mean most mainland European countries offer tax credits for pension contributions, allow certain lump sum withdrawals, and tax the pension as income when you start to draw it down... so what am I missing???
So is this a symptom of poor performance or poor/lack of advice? I would say probably a combination of both.Perhaps the best way of explaining, is by giving the example of my pension. I was paying into my private pension scheme for 32 years and when I retired my total fund was worth about the same as the total contributions that I had made to the scheme. There was no growth in the value of my fund at all, it had been eroded by the running costs of the scheme, bid-offer spreads, annual fund fees, administration fees and recently, taxes etc., etc.
Therefore, the pension companies to not want to focus potential customers on the lack of growth and high costs associated with pensions, they focus on the tax relief.
It should not be a choice between a pension or a saving account. Everyone should be allowed to have a pension savings account, one that gets the usual tax relief, earns interest, but has no charges, just like all other saving accounts.
So is this a symptom of poor performance or poor/lack of advice? I would say probably a combination of both.
Everyone can have a pension savings account but whoever would run this let it be a bank or credit union would still incur large operation costs in the setting up costs and ongoing admin and financial regulation of pensions especially considering that a lot of people move jobs and stop their pension's and move to different providers over their working life time. There is a lot of competion in the market as it stands with countless companies offering various pension products so even if the banks etc entered the market it would do little to drive down the standing costs
The original documentation supplied by the pension scheme predicted a doubling of the value of the fund after 20 years. This was wildly inaccurate, to say the least.
I had pretty much decided not to do any future contributions because of the issues discussed in the article - that there may actually be a tax cost in the long term if you contribute to a pension scheme - but the reason I will definitely never put another cent into a pension product is the 0.6% government levy being applied for at least 4 years. This has the same effect as a permanent 2.4% income tax surcharge when I draw down the pension and there is absolutely no way for me to avoid it on my past contributions. I can, however, ensure that the government don't get the chance to steal my future pension savings by keeping them in easily accessed investments that can be moved if necessary. A levy on locked-up-for-30-years pension contributions was such an easy steal for the government that it's hard to see them not keeping the levy going indefinitely.
In short, a 0.6% levy will not come near eroding the value of the tax relief on contributions. It will make the case for pensions investment less compelling, but should only tip the balance away from pensions where the tax free lump sum is limited and practically all the proceeds of the pension are taxed at the higher rate in retirement.
Update from the budget:
The 0.6% levy is not being continued beyond 2014 and restrictions being brought in on the level of contributions that can be made should actually protect people from investing in a tax inefficient manner.
the When it comes to the pension fund, the min and max holds of each asset class are mandated by law, as is the quality of instruments selected within each class, so you will not find Facebook on the list for instance. There are no fees charged on transactions etc... and the fund must pay a minimum return of the net assets to the contributors each year before the management fee can be applied. The management fee itself is usually less than 0.40% pa.
and in 23 years here, I've yet to hear of one of them going under!
So I would expect that there is a lot of room for reform in Ireland....
You cannot rely on that. Next governement or next budget might change that back again.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?