Life Assurance Exit Tax / ETF Exit Tax / Government Levy & Pensions

G

GSheehy

Registered User
Messages
1,832
Would you accept a reduction in the 40% tax relief on pensions to 'pay' for the abolition of Deemed Disposal and repeal of the 1% Government Levy?

Clearly, if you're retired and you've filled your boots on marginal tax relief over your working life, you'd think it was a great idea.

But, to those of you 10/15 years or more out from retirement, what say you?

I don't think it's the wildest compromise/possibility in this scenario as Paschal is on record as saying "pension related tax relief represents a large and generous tax expenditure". So, continue to fill your boots in the meantime.


Gerard

www.bond.ie
 
GSheehy said:
Would you accept a reduction in the 40% tax relief on pensions to 'pay' for the abolition of Deemed Disposal and repeal of the 1% Government Levy?
Click to expand...

Surely that is like saying "Would you accept a €10 cut in Jobseekers so that the Contributory OAP could be increased by 5%?" or "Would you accept a €5 cut in OAP so that the dole could be increased by €10?"

As a pensioner, I would certainly accept your dole being cut so I could get more.
As a pensioner, I would not accept my pension being cut so you could get more.
 
Levelling the taxation playing field such that investing for goals in 5-10 years (house, children's education, greater independence from the daily grind, business or project etc.) is broadly neutral vs. investing for decades hence seems like an easy sell to me but as usual, it will depend on how the message is relayed to your average voter.

The current system reflects a bygone era where people chose a career, worked that career for 40 years and sailed off into the sunset. People increasingly need cushions against the rapid pace of change in job markets.
 
Last edited:
The logic of this makes me wonder what we got in exchange for adding the 1% levy. DD can be argued to make up for the lack of tax on dividends, but the levy is ridiculous.
 
Certain categories of people are advantaged by the deferred taxation of Irish pensions. People who gain tax relief at 40% in and pay 20% out certainly do reasonably well.


USC is payable on pension contributions and is applied again on drawdowns.

PRSI is paid on pension contributions and is applied on ARF drawdowns up to COAP claim age.

This reduces the advantage for pension contributors.

People making AVCs are very limited on the amount of extra tax free lump sum available to them.

The government has in the past, raided private pension funds and is likely to do so again in the future.

Because of all these factors many people who get tax relief at 40% in and pay 40% on their pension are not tax advantaged by the Irish pension system.

In my case I got 40% tax relief on pension contributions. I paid USC and Prsi on these contributions.

I pay 40% tax and USC on my pension drawdowns.
I paid Prsi on my ARF drawdowns up to age 66.

These tax rates apply to my monthly pension and because this has increased as a result of investment gains, the investment gains are also taxed at 40% plus USC.

I made AVCs and received a very modest extra tax free lump sum on retirement.

In my case the Irish pension system has not provided large and generous tax advantages.


Definitely No to any reduction to the 40% pension tax relief.
 
Last edited:
I put the €28,750 maximum pension contribution into my pot every year. Age 42. Can't put in anymore (age discrimination in the tax legislation). The hope is that I get 25% out tax-free, then only pay 20% tax (+USC and maybe PRSI) on the AVC withdrawals.

I pay USC and PRSI of 12% before that. So underying pre-tax earnings are €32,670. USC and PRSI -€3,920.

However, if I assume the tax-free lump sum on retirement of €200k comes from the employer contributions, and assume I pay 20% on the lump sum drawn from my own contributions, and 25% all-in rate on AVC withdrawals of my own contributions (tax, usc and prsi), assuming inflation and growth even out and tax bands,etc move in line with inflation, then what I will see net of my invested €28,750 is: €5750 +€16,172.

So of my gross pay of €32,670, I get to ultimately keep €21,922. That's effective tax of 33% (if I haven't done my maths wrong). Which is 19% better than the 52% I would pay if I didn't put it into my pension.

Which means the apparent tax saving on my own pension contributions is potentially way less than people might expect.

What is really really valauable though is the 25% of Pot up to 200k lump sum exemption and the absence of BIK on the employer contribution. That is 100% tax-free (if I notionally say that is what primarily forms the tax free lump sum.

I don't see how I can beat the above by investing the 48% after amount of €15,682, with a flat tax of 38% on withdrawls, no chance of using tax credits, etc. But is it worth further examination? I mean I'd be investing in similar assets under either umbrella. So I'd be mad to give up the pension tax saving, no?
 
Surly the big benefit is the growth on the pre tax amount?

Even if you have to pay the higher rate in retirement you are still better off that if you had paid tax then invested.
 
Villaines said:
age discrimination in the tax legislation
Click to expand...

I actually think it discriminates against different lifestyle choices. Have kids late in life and you might not be able to take advantage of the higher limits. Earn more in your 20s than your 40s and you have lower limits.

A life time limit would be fairer.

That said I think all taxes and benefits would be fairer if they looked beyond one year.
 
faketales said:
I actually think it discriminates against different lifestyle choices. Have kids late in life and you might not be able to take advantage of the higher limits. Earn more in your 20s than your 40s and you have lower limits.

A life time limit would be fairer.

That said I think all taxes and benefits would be fairer if they looked beyond one year.
Click to expand...
I think tis is an excellent point, and there is no great justification for it. We already have the Standard Fund Threshold (SFT) as the life time limit.

We don't do long-term thinking in the civil service in this country. Its all very short term, mostly dictated by the political cycle. There simply is no compelling incentive here to thinking long-term, and no platitudes for the political classes from the electorate to encourage it.
 
You must log in or register to reply here.
Back
Top