Pre-Budget Submission: Pension contribution limits should be based on the size of the fund, and not the calendar.

[Brendan Burgess]

At present people can contribute a percentage of their salary to their pension depending on their age e.g. 15% if they are under 30, rising to 40% if they are over 60.

There is very little logic to this.

Someone who prioritises paying down a big mortgage or investing in a business might lose out on the opportunity to contribute to a pension.

Why not allow contributions based on the size of the existing pension fund.

If a fund has €2m in it, no further contributions.
The maximum fund size at age 50 would be €1m.
The maximum fund size at age 40 would be €500k.
etc.

 

[Brendan Burgess]

On a related issue, the treatment of the €2.15m fund threshold should be changed.

Any amount in excess of €2.15m is taxed at 40% and the remainder is left in the fund to be taxed as it's drawn down, giving a tax rate of almost 70%.

This seems unfair.

Any amount in the pension fund in excess of €2.15m should be drawn down immediately as salary and subject to normal tax, USC and PRSI.

Brendan

 

[Bow tie]

At present people can contribute a percentage of their salary to their pension depending on their age e.g. 15% if they are under 30, rising to 40% if they are over 60.

There is very little logic to this.

Someone who prioritises paying down a big mortgage or investing in a business might lose out on the opportunity to contribute to a pension.

Why not allow contributions based on the size of the existing pension fund.

If a fund has €2m in it, no further contributions.
The maximum fund size at age 50 would be €1m.
The maximum fund size at age 40 would be €500k.
etc.

Don't people effectively do this anyway- and seek not to hit the 2M ceiling?Better to leave the flexibility in a persons hands?
Yes, I might prioritise my mortgage payments from 25-40, and then want to rapidly build up pension at usually a higher salary and to allow some time for compounding to pass.

What is the benefit of changing the current flexibility?