Key Post Should you contribute to a pension fund if you are in danger of breaching the €2.15m to €2.95m limit?

[Steven Barrett]

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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Steven Barrett]

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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[EmmDee]

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]

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

 

[Gordon Gekko]

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]

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]

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

 

[Tuttlinghorn]

Some people look to ship their pension out to Malta.

Hi @Gordon Gekko - can you elaborate on what ‘shipping the pension ‘ means - or point me to anywhere I can do some reading on the topic ?

 

[AJAM]

If you have say 1 million in a Irish DC pension and 1 million in a foreign e.g. USA 401K pension and you now live work and will retire in Ireland.
Have you hit the 2 million threshold or does the foreign pension scheme not count?

 

[Sarenco]

The SFT/chargeable excess tax only relates to Irish approved pensions.

It’s worth noting that the SFT is being gradually increased to €2.8m in 2029.