Key Post Should you contribute to a pension fund if you are in danger of breaching the €2m limit?

Steven Barrett

Registered User
Messages
4,648
And if an Employer is contributing, then it probably makes sense to keep accumulating even if this exceeds the €2.15m.

I wouldn’t have thought so. Better to just take extra salary, if your employer allows it.

I think the approach here is it's free money anyway, so even if you get an effective tax rate of 70% of it, you are still getting 30% net. Of course, if they will pay you the salary, then go for it.


Steven
www.bluewaterfp.ie
 

Steven Barrett

Registered User
Messages
4,648
Business owners will also have the CGT option to consider.


Business owners should be planning lots of ways to get excess cash out of the business. Retirement relief being one of them, if applicable. Getting a spouse and children on the payroll and getting pensions in place for them.

The €2m threshold shouldn't be sneaking up on you, so there is ample time to plan for these things.


Those in the public sector have a lovely option of paying the excess through what is effectively a 20 year interest free loan. And if they die within the 20 years, the debt dies with them.


Steven
www.bluewaterfp.ie
 

EmmDee

Registered User
Messages
743
What happens with the pension limit in a situation where a couple separate? So for example, if there is a pension pot of €3mm in one person's name and as part of a separation agreement the pot is divided equally (€1.5mm each), does each person still have a €2mm limit on retirement or does the limit get split as well?
 

Oisin19

Registered User
Messages
174
What happens with the pension limit in a situation where a couple separate? So for example, if there is a pension pot of €3mm in one person's name and as part of a separation agreement the pot is divided equally (€1.5mm each), does each person still have a €2mm limit on retirement or does the limit get split as well?

The BCE of the pension scheme is calculated as if no PAO took place. ie you add back the amount that was transferred out. Divorce in some cases can also solve the SFT problem :)
 
Last edited:

Gordon Gekko

Registered User
Messages
6,339
Could I get a translation of the TLA's :)

BCE is Benefit Crystallisation Event - When you access pension benefits or transfer them overseas

PAO is Pensions Adjustment Order - When during a marital breakdown part of one spouse’s pension is allocated to the other spouse

SFT is Standard Fund Threshold - The maximum total pension benefits someone can accumulate nowadays, €2m
 

sunnyside

Registered User
Messages
55
Hi Gordon.
Has your thinking evolved on this ?
What’s the solution for people closing in on their SFT?
Keep contributing and pay the extra tax.

Convert it to cash and wait until retirement ?

Move the pension abroad when it’s close to €2m ? Malta ? Portugal ?

Any other available option ?
 

Gordon Gekko

Registered User
Messages
6,339
Hi sunnyside,

The most common approach for someone who can’t ‘ARF’ immediately is to move to cash, the logic being that once you’re at €2m/€2.15m, the risk/reward becomes very skewed in favour of Revenue.

‘ARFing’ immediately is probably ideal if possible.

Some people crack on with their investment stategy regardless, on the basis that the Standard Fund Threshold may increase over time, even via indexation at a minimum, or they take the view that any growth, even growth that’s heavily taxed, is a good thing. Some of those people then look to split their pension assets into multiple PRSAs which can be ‘retired’ separately. For example, the retiree might access one PRSA with a value of €2.15m and leave another untouched until age 75 holding any excess. Yes, there’ll be Chargeable Excess Tax then based on current rules, but in the interim there will hopefully be tax-free investment growth. Plus, in a death scenario, the proceeds of the PRSA would be paid out tax-free to a surviving spouse.

Some people look to ship their pension out to Malta.

Personally, I think I’d ship mine out to Malta as I intend to spend a good bit of time in Portugal anyway.

All the best,

Gordon
 
Last edited:

NoRegretsCoyote

Registered User
Messages
4,550
The SFT is based on the value of the primary pension being paid and not the spouse's one. There is no SFT calculation carried out once a spouse's pension starts being paid.

Yes, but that's presumably because none would be necessary even in the most extreme circumstances.

A spouse's pension is half of the deceased's, so max 50%/2=25% of deceased's final value salary. Even a secretary general's final salary is "only" €220k.

€220k/4 is €55k per annum. It's hard to see how this could ever be considered to have a capital value of anything near €2m.

Am I missing something?
 

Steven Barrett

Registered User
Messages
4,648
Yes, but that's presumably because none would be necessary even in the most extreme circumstances.

A spouse's pension is half of the deceased's, so max 50%/2=25% of deceased's final value salary. Even a secretary general's final salary is "only" €220k.

€220k/4 is €55k per annum. It's hard to see how this could ever be considered to have a capital value of anything near €2m.

Am I missing something?

I don't understand the point you are trying to make?
 

Steven Barrett

Registered User
Messages
4,648
Steven - have you come across the issue of people reaching the SFT early. Have you come up with a solution ?

If you are a hospital consultant, you can take it as a given that you will breach the SFT. There really isn't a whole lot to do. Stop AVC payments. The other thing you could do is hope the value of the AVC's fall in value, but that isn't a great strategy. I prepare my clients that this will be a payment that they will have. It is difficult with clients with a large DB pension, large salary and when they get increments every year. The value of their DB goes up each year.

Have you any experience of the Malta option ?

I don't use Malta for pensions. While it is allowed, it is sailing close to the wind regarding pension planning. The Revenue can always put rules in place to stop it and I don't fancy having to deal with the fallout with my clients on it.


Steven
www.bluewaterfp.ie
 

Conan

Registered User
Messages
1,494
My point is that a PS spouse's pension would never breach the €2m threshold.
It not the spouses pension that is valued at retirement for the threshold. It’s the total pension package, which in the case of a Civil Servant could be:
- a members pension of 50% of Salary, indexed in retirement
- a lump sum of 150% of salary, and
- a possible spouses pension on the member’s death in retirement

The multiplier for valuing such a package could be c30 times the members pension.
 
Top