T McGibney
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Yes we all know that, but to the extent to which it represents a problem will be lessened if and to the extent to which more people are relatively financially independent in old age.
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TSW Commission: The tax-free lump sum on retirement should be reduced
- Thread starter Brendan Burgess
- Start date
I wonder what effect this proposal would have on the retention rates in the Public Service? The whole point of having a civil and public service is that in times of crisis the country can continue to operate. Is the Retirement Gratuity not an incentive to keep public servants in the public service for their whole or most of their career? If you remove that incentive, what would the consequences be?
That'll be news to most of us.
I thought it was to run the organs of the State on a day to day basis.
I hope not. Bribing State employees to stay in jobs that they don't want to do will just lead to a bad atmosphere, low standards, bad leadership, inefficiency and the waste of billions of tax payers money... oh, wait.
Mobility of labour?
Steven Barrett
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If they extend the age of receiving the State pension, there will be people working for longer and the State pension will be paid for a shorter period. While it won't solve the problem, it will take some pressure off it. Instead, the current govt refused to extend the age to 67 as had been agreed years previously. The Shinners want to bring it back to 65 and put even more pressure on the funding of it.
There is no record of the cost of the tax free lump sum. A Revenue estimate from 2014 put it at €134 million. A drop in the ocean when it comes to expenditure.
Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
We still need working people to create wealth and shoulder the burden of running things.
T McGibney
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Yes. Subjecting their entire accumulated pensions to income tax is a funny way to incentivise both.
In the context of a crisis it's about retaining public servants who continue to do their respective jobs and not having a mass exodus. If there is no incentive for them to stay (and the retirement gratuity is only one) then there could be very acute shortages of nurses, Gardaí, teachers, etc.
Offering remuneration for work done is not a bribe. This kind of generalisation is not at all helpful to the discussion unless your intention is to have this thread descend into a public vs private war of words.
So you're saying that public servants should be replaced with more public servants?
If the Retirement Gratuity (which is defined as a Tax Free Lump Sum) were to be taxed you would quickly find out that you cannot take away something from a few hundred thousand public service employees without giving something back in return. The Commission stated that "On balance, the Commission concluded that the existing approach of marginal relief was appropriate on the basis that such contributions represent a deferral of income. ". I imagine there would be a number of legal challenges to any changes to the gratuity given how it is defined. So you would have to compensate these employees during their career for their loss of income on retirement i.e. you won't save any money in the long term. And, you would have the same people who valued individual public pensions in the millions (in that thread from a few years ago) now saying that that public servants should not be compensated to the same "value" of their pensions.
In my view the only practical solution would be for new entrants to sign up to different pension entitlements like they did in 1995. The benefits would be reaped in 40 years or so.
It would have no effect on retention.
It's currently 200k so it's currently a "problem" for public servants earning 133k. It could easily be reduced without impacting the vast majority of public servants. (However it would impact the decision makers in Revenue and the DoF so that's why it's so high)
That lump sum is very much secondary in importance to the annual pension for public servants. It's a thick layer of icing on the cake.
Lump sum is worth whatever it is, but the pension will be worth several times more than the lump sum.
E.G. lump sum of 200k = salary of 133k = pension of 66k = ~1.6M of a pension at a 4% annuity.
Also people leave the public service at a reduction in the tax free lump sum, they'll find they the same tax on lump sums outside the public sector, except it'll be a lot harder to build an equivalent pension. So what would be the point?
Quick and (very) dirty look at the figures:
Assume a pot €1m, full SPC entitlement (assume 13k p.a), PRSI exempt and age tax credit. Assume todays effective tax rates stay the same over time.
25% lump sum - 10k tax.
Assume remainder, 750k drawn down over 25 years - 30k p.a.
Total Income in retirement 43k p.a.
Assume no additional entitlements, just single.
Total deductions: 6.8k
Effective tax rate on 43k income in retirement: 15.8%
Effective tax rate on 43k income age 25: 21.9%
Ignoring the SPC:
Total deductions on 30k p.a. in retirement: 3k
Effective rate is 10% (Effective tax rate on 30k income age 25: 15.8%)
Total tax paid over 25 years: 3k x 25 + 10k = 85k
Effective tax rate on €1m: 8.5%
Effective tax rate on €1m earned over 25 years (40k p.a.) age 25: - 19.75%
Deductions calculated from:
www.pwc.ie
Assume a pot €1m, full SPC entitlement (assume 13k p.a), PRSI exempt and age tax credit. Assume todays effective tax rates stay the same over time.
25% lump sum - 10k tax.
Assume remainder, 750k drawn down over 25 years - 30k p.a.
Total Income in retirement 43k p.a.
Assume no additional entitlements, just single.
Total deductions: 6.8k
Effective tax rate on 43k income in retirement: 15.8%
Effective tax rate on 43k income age 25: 21.9%
Ignoring the SPC:
Total deductions on 30k p.a. in retirement: 3k
Effective rate is 10% (Effective tax rate on 30k income age 25: 15.8%)
Total tax paid over 25 years: 3k x 25 + 10k = 85k
Effective tax rate on €1m: 8.5%
Effective tax rate on €1m earned over 25 years (40k p.a.) age 25: - 19.75%
Deductions calculated from:
Income tax calculator 2022
Use our interactive, income tax calculator to estimate your tax position for the coming year in light of the measures announced in Budget 2022.
www.pwc.ie
Although I stand open to correction on this, it's not there for reasons of logic but derives from Art 10 of the Treaty between Great Britain and Ireland, signed at London Dec 6, 1921 (aka 'the Anglo-Irish Treaty'). Essentially, the Free State agreed that public officials who retire or were discharged by it would not be treated less favorably as a consequence of the change of state.
It goes back before there were Widow's and Orphan's pensions. It really was to provide a cushion for survivors if the public servant died early.
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