What is the rationale for any tax-free lump sum on retirement? A pension fund should be to provide a person with an income and not with a tax-free lump sum.
The 25% tax-free up to €200k is too generous.
But can you reduce that for people who have made pension contributions in the expectation of getting this?
Brendan
That's mad!
Surely there should be a more reasonable limit on what the company can contribute?
It's no wonder @Marc has clients in their 40s with ~€2m pension pots...
Well, surely that's one area that's crying out for reform.They still use the defined benefit pension rules...
Ok but we already have progressive age-related contribution limits that surely adequately allow for "catching up". Somebody in their 50's, for example, can get tax relief on contributions of up to 30% of their net relevant earnings.The rational for the “generous” limits applicable to Directors (but applicable to Employees also) is that many Companies/ Directors might only be able to start contributing later in life (say from their 40’s onwards) after the business becomes successful. So there is an element of “catching up”.
Are you comparing like with like the civil servant employer only started giving him credits form when he reached 50 he/she would not get 2/3 pension,for 15 years cont,Sarenco
I don’t disagree that Self Employed are treated unfairly by comparison to Directors. But even a Director contributing 30% of Salary from age 50 would not accumulate sufficient to buy a 2/3rds Pension (or equivalent to say a senior civil servant) by say age 65.
The €2m cap is the ultimate limit (in effect). But even €2m fund is equivalent to a joint life pension of c€60,000 pa in Annuity terms. A good pension but not a fortune ( and lower than many a senior civil serving).
But how is that different to a self-employed dentist who may struggle to afford to make contributions in the early years of his practice?An SME type company may be in existence for 20, 30 years but perhaps in the early years cannot afford pension contributions.
Well, surely that's one area that's crying out for reform.
Aside from the inequitable treatment of different cohorts of taxpayers, it can hardly be in the State's interest to allow company directors to shelter income from tax to that extent.
Maybe the maximum amount that a company can contribute to a director's (or employee's) pension pot should be capped at, say, 25% of the individual's own pension contributions. Would that work?
An SME type company may be in existence for 20, 30 years but perhaps in the early years cannot afford pension contributions. Perhaps only when it grows to a certain level can it begin contributing and making up for earlier years.
As long as public service employees still get DB pensions, can you see them changing funding requirements?
The fact that something wrong is difficult to change, does not mean that we should not try to change it.
Brendan
Your suggestion I think is full of loop holes it would allow very rich people who held there wealth outside of a pension fund to transfer 60% 1.2 of 2 million into a fund and expect the people who pay the most income tax high income earners to foot 800k ,My suggestion of having fund limits at certain ages would resolve this.
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As the fund size would be limited by age, it would not matter if the employee or their company contributed the money.
So a 50 year old self-employed person who has ploughed all their profits into developing the business and who has made no pension contributions before aged 50, could now start stuffing their pension fund.
Brendan
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