The new Pension Fund Cap -down from €5.4m to €2.3m - raises some interesting points:

Complainer said:
We must have different understandings of 'snookered'. I always thought of it as a negative, bad situation. How does having a large retirement pot at a relatively young age become a bad situation?
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A pension pot of 2.3 million does indeed sound like a lot of money. But it isn't really. According to [broken link removed] in reality it means that a man

Tick Male
Current Age 64
Annual Salary 110,000
Current value 0
Intended retirement age 65
Target Pension as % of Pre-Retirement Salary 66.6%

This will require a pension provision of €2,300,100 which produces a pension of €61,350. A nice pension but nothing to out of this world considering the 2.3 million that needed to be saved.
 
Perhaps we live in different worlds. To me, a pre-retirement salary of €110k is an awful lot of money. A post-retirement salary of €70k+ is an awful lot of money. Given the State of our economy, I don't see that addressing small loopholes about tax treatment of investment growth for a small number of wealthy people should be top priority for Govt.
 
Complainer said:
Perhaps we live in different worlds. To me, a pre-retirement salary of €110k is an awful lot of money. A post-retirement salary of €70k+ is an awful lot of money. Given the State of our economy, I don't see that addressing small loopholes about tax treatment of investment growth for a small number of wealthy people should be top priority for Govt.
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It was of sufficient priority to the last government to create another loophole to ensure that retiring govt ministers and senior public servants were exempted from those measures.
 
Complainer said:
Perhaps we live in different worlds. To me, a pre-retirement salary of €110k is an awful lot of money. A post-retirement salary of €70k+ is an awful lot of money. Given the State of our economy, I don't see that addressing small loopholes about tax treatment of investment growth for a small number of wealthy people should be top priority for Govt.
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The point I am making is that the headline figure of 2.3m is misleading. It sounds like a lot of money (and it is if was in your bank account) but "only" produces a pension of 61k. Don't get me wrong, 61k as a pension is certainly nice, but remember you have to have had saved 2.3m to get it first...no mean feat.

Taking a more realistic example: A fund of €1,277,560 is needed to pay out 30k per year. That's an aweful lot of money for someone to save in my book. For someone who is not part of a defined benefit pension and who is 35 years of age wanting this pension they would need 22k a year to be put into a pension fund. Realistically you would need a salary of over 100k for every one of those 25 years to have any hope of saving this amount of money
 
Complainer said:
Can I clarify a couple of things?

- Are there generally fixed retirement ages with such funds? I know of some wealthy people with self-managed pensions who managed to get access to their funds long before 60+.

- When you mentioned that 'grandfathering' may well apply to any further cap reductions as before, what exactly does this mean.
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Early retirement from age 50 onwards is permissible in an Occupational Pension Scheme with the agreement of the scheme trustees, but you must be "actually" retiring from that employment, severing ties with the employer, selling any shares you may have in the company etc., to avail of it.

The reference to "grandfathering" presumably means that if someone already has accumulated a fund greater than the new reduced threshold, they will be given the opportunity to apply for a Personal Fund Threshold for the actual amount of their fund. This is what happened with the €2.3M threshold. If someone had already accumulated a fund of €3M on Budget Day, then they could apply to have €3M acknowledged by Revenue as their PFT. Only the excess over this PFT figure would be penalised.
 
Thanks to Conan and Complainer for commenting on the situation I have described ( Pension fund growing > €2.3m PFT) ...

YES : to answer 'Complainer's' point, I am lucky today to be in the situation described : ie having a potential fund value today of almost €2.3m with the potential for it to grow in future years until I retire by virtue of its DB component and hopefully modest AVC growth. However I subscribe to the adage that you make your own 'luck' : I have been contributing to my AVC since I was 22 years (ie for 30years) and hence despite recent market turbulence I have an AVC fund that was to provide me with options for a) early retirement, b) indexation of my pension (which my DB scheme does not have - unlike the public service schemes!). Now I find myself in a situation where I cannot get the AVC funds invested back , even though future growth in either the AVC element (even when invested in lower risk cash) or the increasing value of the DB element mean that more and more of my funds will be subject to double taxation. So ,Complainer, while your may be correct in saying that given the current situation of the country that I am 'lucky' wouldnt the country be in a better position overall if others had been similarly prudent and not blown their money in their younger years (which I didnt do) - I work in private industry and have no job security (although my current employment looks very secure) : unlike many others I have been responsible and planned for my future in accordance with government policy that promoted investment in pensions : it cant be right that this policy be undone retrospectively with virtually no grandfathering for future growth of funds that are locked down and inaccessible. I would have no problem with the policy if there was some way of taking the fund back out (albeit taking a tax hit along the way but I dont believe this is an option).

Conan - Thank you for your comments and advice : addessing some of your specific comments (blue italics):
-

  • Cease all future personal contributions. (May not be possible if you are in some occupational pension schemes)
  • I am awaiting some advice from a pensions advisor but it looks like I will be ceasing all of my AVC contributions.
  • If you are in a DC scheme, you should cease all employer contributions (you may need to negotiate an alternative use of such contributions going forward)
  • I have an AVC contribution match from my employer up to 4% but I will have to forego this benefit -
  • If you are in a DB scheme (remember that the PFT value is based on service accrued to Dec 2010) you need to estimate whether your eventual benefit will exceed the PFT (i.e. pension x 20 plus AVC fund)
  • I am fortunate in a very competitive DB scheme provided by a MNC employer - I will definitely exceed the PFT by many 100,000s if I work to 65. A question : Does the pensio to fund factor take any account of the ultimate benefit : ie I have seen the 20X factor applied to the DB pension component in examples : does the factor take any account of pension indexation , spousal pension etc etc - I have heard of it being applied to civil service pensions in media commentary but their terms are more attractive than almost all private DB schemes (ie indexation , increments etc)
  • If in a DB scheme you also need to consider whether the scheme is fully funded and whether you might actually get the full promised benefit
  • Again I am lucky that because of higher funding costs due to longevity and poor returns there was a big deficit, the MNC I am working for has contributed many millions to date to close the gap and has a funding plan to get fully funded over the next 10 years. I am quite happy that this promise will be delivered on in my remaining years with the company.
  • De-risk your investment strategy (taking risk will not be rewarded and you must avoid losing any PFT in the future)
  • Thanks for this - While awaiting additional advice from pension consultant I moved 50% of fund into cash ( to be honest primarily driven by Euro uncertainty).. so I have partialy followed your advice: will have another reallocation option in the new year.
  • If the PFT is reduced further (€1.5m is being suggested) then presumably a form of grandfathering will apply to those currently between €1.5m and €2.3m (as before)
  • I dearly hope so or else I am really screwed !! .. I have posted a question elsewhere which I will ask again here : has there been any discussion on legally challenging the retrospective nature of the changes and the lack of allowance for future growth? ( Given the impact on the members of the judiciary and Im sure many of the notables in the legal profession if there was a way of doing this I'm a sure they would have done so and we would have heard of it !)
It doesnt look like I have any other options ?...One other detail : My spouse is a homemaker and doesnt work : we are assessed jointly : is there a way of my assigning my AVC fund to her such that she has her own PFT? I am way out of my depth on this topic and am clutching at straws but maybe some of the more creative advisors on the thread can come uyp with additional suggestions. I have two children that are dependent on me : I assume that I cant gift any of my AVC funds to them ? (Again excuse my ignorance)

I should stress that my objective in this line of enquiry is to avoid penal double taxation of my prudently amassed funds but I have NO objection to paying at the marginal rate what is appropriate on my income

Thanks for any ongoing posts / advice.
 
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adrigole said:
However I subscribe to the adage that you make your own 'luck' : I have been contributing to my AVC since I was 22 years (ie for 30years) and hence despite recent market turbulence I have an AVC fund that was to provide me with options for a) early retirement, b) idexation of my pension (which my DB scheme does not have - unlike the public service schemes!). Now I find myself in a situation where I cannot get the AVC funds invested back , even though future growth in either the AVC element (even when invested in lower risk cash) or the increasing value of the DB element mean that more and more of my funds will be subject to double taxation. So complainer while your may be correct in saying that given the current situation of the country that i am 'lucky' wouldnt the country be in a better position overall if others had been similarly prudent and not blown their money in their younger years (which I didnt do)
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Fully agree - fair play to you for putting this valuable asset in place.

adrigole said:
it cant be right that this policy be undone retrospectively with virtually no grandfathering for future growth of funds that are locked down and inaccessible. I would have no problem with the policy if there was some way of taking the fund back out (albeit taking a tax hit along the way but I dont believe this is an option).
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Just for the record, I'd have no objection to some facility for you to take funds back out taking the tax hit on the way. I'm not stomping my feet and suggesting that the Govt has to spite you. I'm just suggesting that you're probably not going to be the top priority area for Govt action in the current circumstance.
 
I wanted to bump up this thread again. As some of you know, the Standard Fund Threshold (SFT) was reduced to €2m from 1 January 2014.

http://www.revenue.ie/en/about/foi/s16/pensions/chapter-25.pdf

My husband is in a similar position to Adrigole who posted earlier, and as Conan pointed out, is snookered. He has built up a substantial pension fund over his lifetime, including some additional AVCs, and he is fast approaching the €2m limit. He is 3 years from retirement. He is in a position now where a pay increase (something that is likely to happen this year) will cause his pension fund to exceed the STF and will cause an immediate liability upon retirement. He reckons a 2% salary increase (a conservative estimate) over the next 3 years will create a liability of up to 70K when he retires. Any greater increase could literally wipe out his lump sum.

Is anyone dealing with this situation at all?
Miraculously the AVCs are increasing in value, but as we understand it, we could only cash in 30% of the AVC fund - that won't be enough to bring down his total pension fund enough to offset the impact of pay increases.
He cannot make his employer stop contributing to the pension scheme. His employer and pension fund managers don't really believe what he has been telling them (he has been asking for a bonus instead of an pay increase, but they don't really seem interested and are saying that it isn't possible. I know it sounds bizarre, but there you have it. ) At this stage he is seriously contemplating leaving his job - that would keep the fund below the threshold, and he could convert the AVCs to cash until retirement.

So is there still no recourse on this matter? Is there anything else he could do to improve his situation? Any help would be appreciated.
 
Steven, he is ex public sector, now in the private sector. His pension is in a DB scheme.
 
Ok, if he was public sector, he could use the Encashment Option but that doesn't apply for ex public servants who have gone to the private sector.

There isn't a massive amount he can do. Regarding AVC's, move them into cash where there will be no growth (in fact, there will be a loss when the management fee is deducted).

I find it a bit strange that his employer don't believe him when he tells them he is going over the €2m. Usually companies are perfectly happy to stop making contributions. Going on the size of his pension fund, I presume he's on a good salary, so the pension contributions into a DB scheme would be costly.

How has he presented his case to them?

Steven
www.bluewaterfp.ie
 
Would a way around this in some cases where close expect to get close to €2m cap be to put any
defined contribiuition schemes you have already left into an ARF as then no longer a pension fund and "growth" would not be subject to penal tax ? (and also under age 60 ARF has no compulsary drawdown I believe so works better for those over 50 and under 60 still in employment)

Any comments on this idea?
 
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