UK's IFS proposes reducing tax reliefs on pensions

T McGibney said:
over public sector pensions that often dwarf €2m,
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There are something like 400k public service workers on DB schemes.

I'd estimate something like 1% of these are on track to breach the SFT, the majority of whom are hospital consultants.

The idea that these "often" breach €2m is just not true.
 
T McGibney said:
Why shouldn't it do both?

There is zero social benefit in GPs and entrepreneurs amongst others retiring in their mid-50s to avoid a huge tax hit if they stay working another decade.

And nobody ever gets their knickers in a twist over public sector pensions that often dwarf €2m, every cent paid for by the taxpayer.
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They stop working in their mid-50s because they can.
 
azerty said:
There are something like 400k public service workers on DB schemes.

I'd estimate something like 1% of these are on track to breach the SFT, the majority of whom are hospital consultants.

The idea that these "often" breach €2m is just not true.
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Okay, sometimes.

My point stands.
 
No I didn't. I do know what you mean that it can discourage valuable people to work more. But surely they are not forced to contribute further in their funds... They make a balanced choice. When I said they can, I meant that they could make that choice. Plenty could not and do not have the opportunity to stop.
 
azerty said:
No I didn't. I do know what you mean that it can discourage valuable people to work more. But surely they are not forced to contribute further in their funds... They make a balanced choice. When I said they can, I meant that they could make that choice. Plenty could not and do not have the opportunity to stop.
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Sure we all know that.

It isn't all about equity, there is a clear social benefit in keeping highly capable and productive people in the workforce.
 
NoRegretsCoyote said:
1% is more like rarely than sometimes.

Not really. And with more and more PS workers in the post-2013 SPSPS far fewer will ever get anywhere near the €2m as it's done on a career-average basis.
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Okay, I'll rephrase:

Nobody ever gets their knickers in a twist over public sector pensions that can dwarf €2m, every cent paid for by the taxpayer.
 
NoRegretsCoyote said:
There are something like 400k public service workers on DB schemes.

I'd estimate something like 1% of these are on track to breach the SFT, the majority of whom are hospital consultants.

The idea that these "often" breach €2m is just not true.
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A hospital consultant will breach the €2m limit on their pension. I know people won't have sympathy for them but imagine spending all of your 20's and early 30's training and being moved around the country and then abroad. In your mid 30's you get your rewards for all that hard work and get a job as a consultant, a recognised expert in your field. You are well paid for it and get a HSE DB pension. But, you will also get a massive tax bill at the end of it as your pension benefits will always exceed the allowed cap. How can you offer someone a pension scheme that will land the employee with a massive tax bill at the end?
 
Steven Barrett said:
But, you will also get a massive tax bill at the end of it as your pension benefits will always exceed the allowed cap. How can you offer someone a pension scheme that will land the employee with a massive tax bill at the end?
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That was the point I was making in the thread about the review of deemed disposal tax on etfs. The very fact that we have all these high taxation regimes on investments is discouraging the highly skilled professionals like consultants that our health service is struggling to attract.

Among other factors that could be a significant issue in attracting a consultant to the UK rather than Ireland . Even if the UK introduced this pension threshold, there are still many other attractive investment avenues available there
 
NoRegretsCoyote said:
1) What's your threshold for dwarfing €2m?
2) How many PS employees are on track to breach this threshold?
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Modifying this example given by Paschal, it would seem to suggest a PS pension of c. 90k.
Which would mean those who have 40 years service and a final salary of 180k or maybe some fast accruers, President, Taoiseach, Chief Justice. The capitalisation factor looks to have changed in 2014 which would imply that lesser pensions would breech the SFT in the future.
 
For people with DB funds - taking out a large tax free lump sum means they're sacrificing income and growth in the ARF or a lower annuity.

Its presence can push people into less prudent and sub-optimal outcomes.

In DB funds a lower tax-free lump sum would be for most immaterial as they won't get close to 200k and for the rest they might decide it's better to have a higher annuity/ARF.

I and, I'm guessing, most DB pension owners wouldn't care if that lump sum tax free limit was reduced significantly. The people complaining will be the people getting tax free lump sums that have zero impact on their pensions, i.e. not regular DB pension owners *cough*.
 
T McGibney said:
In this vein, bear in mind that the annual CGT exemption of €1,270 hasn't changed since well before the Euro came into circulation 21 years ago.
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and no indexation for CGT removed in the early 2000s I think, therefore the erosion of the original capital investment by inflation is still subject to full CGT taxation on the sale of an asset
 
I really don't see how our tax system can be argued to favour high earners. The marginal tax on their pension will be c. 50% whilst the marginal relief on their contributions is 40%. The tax free lump sum was a big factor in the other direction but that has been cut back significantly. And of course the fact that you will earn growth on the tax relief before you hand it back is an illusion.
 
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Brendan Burgess said:
Hi Duke

I have been under this illusion all the time.

Is it an illusion because it's taxed anyway at the marginal rate on retirement?

Brendan
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Sorry, I was confusing it with the argument that there is an opportunity cost advantage in getting tax relief now and paying it back in retirement. There isn't; the Tax Man gets all the benefit of the opportunity cost.
There is a tax free roll up benefit - which I suppose can be significant depending on the term to go to retirement. I have seen guys on already great pensions piling into AVCs with a couple of years to go and simple calculations would show this was not optimal.
I will amend my post.
 
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