Finance Bill - Interesting Pensions Changes

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Steven Barrett

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can someone give a summary of the link as can't access
It's a tabloid headline.

If you have €63,500 in an AMRF, which becomes an ARF from next year, you have to take out 4% = €2,540. If paying tax at the higher rate, you will pay an additional €1,300 in tax from your AMRF income.


I've been looking after retired people for as long as the AMRF has been around. When the State pension went over €12,700, AMRF's became ARFs and not one client complained about having to pay tax on the 4%.

Those who were happy to use the AMRF as a means of accumulating their retirement income without paying tax, have enough money for €1,300 in extra tax not to be an issue. Those with small pension pots, aren't paying tax at the higher rate and would prefer to be able to access their money and pay tax on it.

Steven
www.bluewaterfp.ie
 

RetirementPlan

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It's a tabloid headline.

If you have €63,500 in an AMRF, which becomes an ARF from next year, you have to take out 4% = €2,540. If paying tax at the higher rate, you will pay an additional €1,300 in tax from your AMRF income.


I've been looking after retired people for as long as the AMRF has been around. When the State pension went over €12,700, AMRF's became ARFs and not one client complained about having to pay tax on the 4%.

Those who were happy to use the AMRF as a means of accumulating their retirement income without paying tax, have enough money for €1,300 in extra tax not to be an issue. Those with small pension pots, aren't paying tax at the higher rate and would prefer to be able to access their money and pay tax on it.

Steven
www.bluewaterfp.ie
Thanks, I struggled to see the connection between the article and the headline at all.
 

bstop

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The abolition of the AMRF is bad news to lots of people. Consider an early retiree with a large ARF and who will not achieve a state pension above 12500 euro per year, as an increasing number of future retiree's will not. These people will be forced to withdraw extra large amounts from their ARFs and many of these will be forced into the higher tax rate. Somebody retiring at age 60 would have 15 years of withdrawals from their ARF and if they opted for a low risk strategy their ARF will be seriously depleted at age 75. Under the existing system these people were able to opt for a high risk strategy for their AMRF and have the safety net of maybe 100000 euro at age 75 to replenish their depleted ARF. Many of these pensioners will be in danger of poverty at age 75 as a result of this change and some of these will become dependant of the state.
The abolition of the AMRF is purely a tax grab by the government to gain access to a large pot of money immediately, to improve the short term state finances at the future expense of pensioners.
The Irish Times article is aptly headlined and is not a tabloid headline as suggested.
 
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Shirazman

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Consider an early retiree with a large ARF and who will not achieve a state pension above 12500 euro per year, as an increasing number of future retirees will not.
These people will be forced to withdraw extra large amounts from their ARFs and many of these will be forced into the higher tax rate.

Not clear what has changed here; how does the abolition of the AMRF create a new requirement to withdraw extra large amounts from their ARF ?

Somebody retiring at age 60 would have 15 years of withdrawals from their ARF and if they opted for a low risk strategy their ARF will be seriously depleted at age 75. Under the existing system these people were able to opt for a high risk strategy for their AMRF and have the safety net of maybe 100000 euro at age 75 to replenish their depleted ARF. Many of these pensioners will be in danger of poverty at age 75 as a result of this change and some of these will become dependant of the state.

The underlying assumption there being, presumably, that the high risk strategy for the AMRF would always have guaranteed them more funds at age 75! But what if it didn't? Surely they would have become dependent on the State? So what has changed there?
 

bstop

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The change is simply that at present there is a choice as to whether 4% withdrawals are made from the 63500 euro in the AMRF. The change is that in future 4% withdrawals must be made from this 63500 euro which will be transferred to an ARF.
There is less flexibility under the new rules which will be detrimental to many pensioners in later life..
Some pensioners are always going to become dependant on the state. What I have pointed out is that under these new rules greater numbers of pensioners will eventually become state dependant.
 
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Steven Barrett

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The abolition of the AMRF is bad news to lots of people. Consider an early retiree with a large ARF and who will not achieve a state pension above 12500 euro per year, as an increasing number of future retiree's will not. These people will be forced to withdraw extra large amounts from their ARFs and many of these will be forced into the higher tax rate. Somebody retiring at age 60 would have 15 years of withdrawals from their ARF and if they opted for a low risk strategy their ARF will be seriously depleted at age 75. Under the existing system these people were able to opt for a high risk strategy for their AMRF and have the safety net of maybe 100000 euro at age 75 to replenish their depleted ARF. Many of these pensioners will be in danger of poverty at age 75 as a result of this change and some of these will become dependant of the state.
The abolition of the AMRF is purely a tax grab by the government to gain access to a large pot of money immediately, to improve the short term state finances at the future expense of pensioners.
The Irish Times article is aptly headlined and is not a tabloid headline as suggested.

That is not correct. As well as working with retirees since the introduction of the ARF & AMRF, I also spoke to the Revenue about the abolition of the AMRF. It is not fit for purpose. It is simply not true that people need money put away from themselves for when they are 75. People who have retirement pots are quite prudent with the money they take out with most only taking out the minimum required, even when they could take out more.

If you have a large pension pot, €1,300 a year in extra tax is not going to be a burden.

But if you have a small pension pot, being able to access the small amount of money you have saved can make a big difference.

Maintaining the AMRF suited those who did not need the money and were happy for it to accumulate tax free without the Revenue requiring imputed distribution. But even still, the State pension meant that a lot of these people meet the guaranteed income requirement at 66 anyway and not age 75. So given it wasn't actually saving people from themselves and that the age 75 was reduced to 66 for most, what was the purpose of the AMRF?

In a year of record tax takes for the government, trying to get increased taxes into the State coffers isn't the reason. If they were looking for tax income, they would have done it when the IMF were bailing us out!


Steven
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bstop

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It is correct to state that it is bad news for some pensioners as I have pointed out. There has always been the provision that allowed a 4% yearly withdrawal from AMRFs for people with small pension pots. The new rules have closed down the possibility for certain people who have no chance of achieving the full state pension to maintain a financial safety net for later life.
Have you forgotten that the government did take extra taxes during the IMF bailout from PRSAs. The extra tax take from the abolishment of AMRFs will not add to this year's record tax takings but to future years when Corporation tax take might reduce. This is what the government are looking at.
 
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Steven Barrett

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It is correct to state that it is bad news for some pensioners as I have pointed out. There has always been the provision that allowed a 4% yearly withdrawal from AMRFs for people with small pension pots. The new rules have closed down the possibility for certain people who have no chance of achieving the full state pension to maintain a financial safety net for later life.
Have you forgotten that the government did take extra taxes during the IMF bailout from PRSAs. The extra tax take from the abolishment of AMRFs will not add to this year's record tax takings but to future years when Corporation tax take might reduce. This is what the government are looking at.
If you have €50k in an AMRF, you can take out €2,000 a year as a once off lump sum. There's no going back for a 2nd payment in the same year. What if you are 70 years of age and can't afford to heat your house or fix your car? But you have €50,000 in a pension that you can't touch? What good is getting that money at 75 when you are broke now? What do they think they will tell you when you say "but you'll have all this money when you are 75"? I'm afraid Brendan's firewalls won't allow me to print what the answer would be!
 

Dave Vanian

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There has always been the provision that allowed a 4% yearly withdrawal from AMRFs for people with small pension pots.

Not always. That facility only became available with effect from 1/1/2015. Prior to that one could only withdraw growth on an AMRF, which could be zero in some years.

The extra tax take from the abolishment of AMRFs will not add to this year's record tax takings but to future years when Corporation tax take might reduce. This is what the government are looking at.

This extra tax take from the abolition of AMRFs will be negligible in size in the context of the country's finances.

  • Many people had no need for AMRFs because they had annuities and/or defined benefit pensions from other employments.
  • People with smaller funds may well be exempt from tax in retirement altogether, especially if they don't qualify for a full State Pension which is a group you're speaking of. €36,000 annual income for a married couple can be exempt from tax at age 65, which would require a large pension fund.
  • Another cohort of people who availed of AMRFs were early retirees. They will be stuck paying the additional €1,300 tax per year until they reach 66 and get the State Pension. People who can afford to retire early are rarely going to be reliant on their last €63,500 of pension fund so the abolition of the AMRF is not going to materially affect them in any big way.
The numbers of people who will actually be paying this additional €1,300 per year tax will be very small.
 

Gordon Gekko

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It is a tabloid headline.

The change will benefit some people.

On the flipside, I don’t think anyone will weep for the AMRF. It was an administrative nonsense and the Nanny State gone mad.

The change is one of those rare beasts where it benefits the exchequer and nobody cares.
 

Sarenco

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The abolition of the AMRF was one of the recommendations of the Interdepartmental Pensions Reform and Taxation Group. It certainly wasn't motivated by a desire to raise taxes.
If you are really concerned about this issue it may make sense to transfer your pension pot to a PRSA, which can then be split in two. You can then defer "retiring" the second PRSA until you are 75. Problem solved.
 

Shirazman

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The change is simply that at present there is a choice as to whether 4% withdrawals are made from the 63500 euro in the AMRF. The change is that in future 4% withdrawals must be made from this 63500 euro which will be transferred to an ARF.
There is less flexibility under the new rules which will be detrimental to many pensioners in later life..
Some pensioners are always going to become dependant on the state. What I have pointed out is that under these new rules greater numbers of pensioners will eventually become state dependant.

But you made the specific claim above that "..an early retiree with a large ARF who will not achieve a state pension above 12500 euro per year, will be forced to withdraw extra large amounts from their ARF" and I asked you how the abolition of the AMRF would cause this to happen.

I await an answer.
 

bstop

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Person with ARF 100000 euro and AMRF 63500 euro.
At present minimum withdrawal 4000 euro per year.
After AMRF abolishment the person has an ARF of 163500.
Minimum withdrawal is now 6540 euro per year.
6540 euro is an extra large withdrawal compared to 4000 euro.
 

RedOnion

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Person with ARF 100000 euro and AMRF 63500 euro.
At present minimum withdrawal 4000 euro per year.
After AMRF abolishment the person has an ARF of 163500.
Minimum withdrawal is now 6540 euro per year.
6540 euro is an extra large withdrawal compared to 4000 euro.
Using your example, wouldn't the full withdrawal still be completely tax free? So how is this a tax grab? Or have I missed something?
 

bstop

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Try adding in a state pension amount of 12000 per year for somebody who did not achieve full state pension. I took those figures to try to explain in simple terms an answer to Shirazmans question. Change to figures to a larger ARF see the effect of the tax grab I am referring too.
 

Conan

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Try adding in a state pension amount of 12000 per year for somebody who did not achieve full state pension. I took those figures to try to explain in simple terms an answer to Shirazmans question. Change to figures to a larger ARF see the effect of the tax grab I am referring too.
For a single individual, even adding in the State Pension, the total income is still below the tax threshold, so no Income Tax.
If the the ARF is larger (say €1m), then the “tax grab” is still relatively small. As others have said, the AMRF achieved nothing, was just an annoyance, and in no way is a “tax grab”, since the amount of tax is small. The headline in the article bore no relevance to the body of the articl.
 

Dave Vanian

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Person with ARF 100000 euro and AMRF 63500 euro.
At present minimum withdrawal 4000 euro per year.
After AMRF abolishment the person has an ARF of 163500.
Minimum withdrawal is now 6540 euro per year.
6540 euro is an extra large withdrawal compared to 4000 euro.

For many people, the Income Tax on the small additional income will be zero.

For some, it might be taxed at 20% so the additional income tax on €2,540 will be €508.

For a small number who managed to accumulate large ARFs but somehow also managed to miss qualifying for the State Pension it might be taxed at 40% so 40% of €2,540 would be an additional €1,016 per year.

I can't see the Minister for Finance getting too excited about this bonanza. A "tax grab" it certainly isn't.
 

bstop

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It's not below the tax threshold when the extra 2540 euro is added to the pensioners income next year. The overall amount of tax grab to the state may be negligible but to certain individual pensioners it is far from relatively small. 508 euro is not small charge to people on modest income.
 

Conan

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But if the only income for a single person is c €13,100 from State Pension plus €2,540, the total is still below the tax threshold. Even for a couple getting State Pension plus Qualified Additional Payment, the total is still below the tax threshold for a couple. Your argument just does not stand up as a “tax grab”.
 
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