Why is there an annual limit on pension contributions?

SBarrett said:
Why not?

Because it will be manipulated and abused by the wealthy. Company owners can pay themselves and their spouse €5,000 a year each and fund for a pension of €2m each.

Steven
www.bluewaterfp.ie
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I presume you're referring to SSAPs? I don't know how the limits are calculated exactly, I'm told there's an arcane formula provided by Revenue to pension providers to calculate maximum backdated company contributions.

My understanding is that maximum SSAP contributions are based on the average of the last several years of your declared income. Unless you're contributing back payments, you can't just declare an income of €5,000 every year and have the company sticking 100k into your pension on your behalf. You have to have a high enough salary to justify contributing large amounts that would result in a pension that pays a decent percentage of your recent salary.

Notwithstanding that, my impression is that we have a two-tier that allows large amounts of backdated contributions to be made by self-employed/company directors, a mechanism not available to PAYE workers which is totally unfair. Given the looming pension crisis, I find it amazing that an equivalent mechanism isn't made available to PAYE workers, or just have one applicable mechanism that's fair for all. Wouldn't it garner a lot of positive coverage for the government??

I just realised at least one gap in my previous idea... homemakers who have much-reduced or no income for a number of years. Perhaps they could be given notional salaries, either based on previous income, the going social welfare rate or the average national salary?
 
NoRegretsCoyote said:
Actually, no.

Historical records are scattered on different IT systems and if you go back long enough paper files.

It would be an administrative nightmare to try to allow people to access unused allowances from 1992 or whenever.
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Oh :confused: Well, unless they embarked on some grand unifying digitisation project, I guess that's the end of that! Given most careers span 45 years, maybe this could be rolled out approaching 1992 + 45 years = 2037. If they have 1980s records on some antique IT system maybe they could bring that forward significantly but otherwise I guess it would have to depend on something more straightforward...
 
Gordon Gekko said:
What about people who get tax relief at the 40% rate, build a €2m fund, expatriate it to Malta, and then draw it down tax free in a sunnier clime.
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Hi Gordon,

As you say, this is bad for the Exchequer but potentially great for the individual.

Can you explain how it works please? Is it Halal? If I transfer my fund to Malta, do I need to live outside Ireland? If so, how is the income taxed in this new country? Oh, and why Malta specifically?
 
Malta has decent tax treaties with other jurisdictions and has an established financial services infrastructure. Plus they speak English and use common law.

In order to draw it down tax-free or at lower rates of tax, one needs to be living in another country, Portugal for example, where the rate is 0-10%.
 
Thanks Gordon,

Your explanation is clear but that's mad stuff : tax relief on the way in, tax free growth and more or less tax free on the way out! Wow.

Are folk actually doing this stuff? Is there anything the Revenue can do? Is there anything the government could do?
 
SBarrett said:
Why not?

Because it will be manipulated and abused by the wealthy. Company owners can pay themselves and their spouse €5,000 a year each and fund for a pension of €2m each.



Steven
www.bluewaterfp.ie
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Far be it from me to disagree with SBarrett, but that’s not the case. To accumulate a fund of €2m and comply with Revenue rules, you would need to have earnings of c€90,000 pa . That would allow a fund sufficient to generate a pension of 2/3rds (so c€60,000), assuming you have a minimum of 20 years service by retirement age. A salary of €5,000 would not allow a Company Director build up a fund of €2m.
 
Gordon Gekko said:
Malta has decent tax treaties with other jurisdictions and has an established financial services infrastructure. Plus they speak English and use common law.

In order to draw it down tax-free or at lower rates of tax, one needs to be living in another country, Portugal for example, where the rate is 0-10%.
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My ears are flapping and I might be getting the wrong end of the stick, but are you saying that you can transfer the ARF or simply draw down from it if you are living/ tax resident in as you say in Portugal/Malta ?
 
Paul O Mahoney said:
My ears are flapping and I might be getting the wrong end of the stick, but are you saying that you can transfer the ARF or simply draw down from it if you are living/ tax resident in as you say in Portugal/Malta ?
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No, an ARF can’t be transferred out or drawn down tax free.

The trick is to move a pre-retirement pension fund out.
 
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Gordon Gekko said:
No, an ARF can’t be transferred out or drawn down tax free.

The trick is to a pre retirement pension fund out.
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Ah here .....whats a pre retirement pension fund out? Is you encash early and leave with the readies, sorry to sound a bit thick but we are now trying to get to grips with the whole thing, and with income tax in 6 figures every year its beginning to chap our backsides
 
Paul O Mahoney said:
Ah here .....whats a pre retirement pension fund out? Is you encash early and leave with the readies, sorry to sound a bit thick but we are now trying to get to grips with the whole thing, and with income tax in 6 figures every year its beginning to chap our backsides
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An ARF is a post-retirement structure. It can’t be moved out of Ireland. But a pre-retirement structure like an occupational pension scheme can be moved out of Ireland.
 
Brendan Burgess said:
This seems to be just taken for granted. I don't think it makes sense and should be replaced by an age related fund size.

View attachment 5144
The problem with this system is that if you don't use it one year, you lose it.

So for example, women who take 10 years out to look after their kids, lose 10 years of pension contributions.
Many people will have a much reduced income this year, and so will lose their opportunity to make contributions this year.

So why not replace it with a fund size - something like the following - these are purely illustrative figures to outline the concept. The maximum could be more or less than €2m.

View attachment 5145

If I want to prioritise saving for a house, I can do so without worrying that every year I am losing the opportunity to contribute to a pension.

If I have a very expensive time in my 40s due to college going children, I won't be penalised for stopping contributing to my pension fund.

And if someone is a low earner in their 20s and 30s but later becomes a high earner, they can catch up.

Brendan
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I would think the rationale is to keep income within the scope of PAYE and preserve tax take.
 
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