The auto enrolment favours people in 20% tax band, but not 40% tax band

D

Dave Vanian

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32. Does the introduction of AE with a State top-up affect the current tax relief system?

The tax relief system as it currently applies to traditional occupational and private supplementary pensions will remain unaffected by the introduction of AE. The two systems will work in parallel with each other.

It looks like the AE scheme will be favourable to employees on the lower Income Tax band. Employees paying higher-rate tax would be better off staying in an Occupational Pension Scheme as they're getting 40% tax relief, assuming that the employer is paying a similar contribution to the AE scheme. Charges will also need to be factored into comparisons.
 
Brendan Burgess said:
Under this scheme, if his net cost is €75, the state will add €25.

So he is getting the equivalent of 25% tax relief.

Are my numbers correct?
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Yes I think so. So it looks like someone on the 40% tax band should continue with a "normal" pension scheme and get 40% tax relief, provided that their employer is willing to pay at least the same level of employer contributions as the AE scheme.

Looks like the AE schemes will have lower charges so this will need to be considered in any such comparison.
 
If the two systems operate in parallel, couldn't someone just sign up to the AE system then use the rest of their available tax relief in the other fund?
 
My spouse is in contributory occupation pension scheme provided by employer but employer does not contribute anything. As per new scheme, will employer will be mandated to contribute ?
 
PebbleBeach2020 said:
To avail of the AE scheme I believe you cannot have another private pension scheme.
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Wow, so basically this excludes anyone on the higher tax band with an existing private pension.
In effect this is a shift in funding liability for pensions for the low paid from the State to employers as over time the State Pension can be reduced in real terms by not increasing it in line with inflation.
 
No scope for AVCs either. If I was paying 40% income tax and didn't have a pension, I would be asking my employer could I look into doing my own thing and get them to pay 6% into that. As Dave said, the 0.5% amc is something that would have to be looked at first.

The reason they are making a State contribution instead of tax relief is so everyone gets the same rate of State contribution, including those who are outside the tax brackets completely.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
PebbleBeach2020 said:
To avail of the AE scheme I believe you cannot have another private pension scheme.
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What about a PRSA ? surely it is unfair to exclude people with PRSAs that are receiving no employer or government contributions. If that is the case surely it is better to stop paying into a PRSA and then enroll in the new auto enrolement scheme.
 
joe sod said:
What about a PRSA ? surely it is unfair to exclude people with PRSAs that are receiving no employer or government contributions. If that is the case surely it is better to stop paying into a PRSA and then enroll in the new auto enrolement scheme.
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You are getting 40% tax relief.
 
Duke of Marmalade said:
You are allowed both but if you already have a pension you are not auto enrolled.
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So you can get 40% tax relief in one scheme and get your employer and government contributions in another???? I don't see that happening, the abuse levels that private sector people should be doing to take advantage of such an allowance is massive.
 
PebbleBeach2020 said:
So you can get 40% tax relief in one scheme and get your employer and government contributions in another???? I don't see that happening, the abuse levels that private sector people should be doing to take advantage of such an allowance is massive.
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I don't see massive abuse possibilities. I think they will still be subject to the max for claiming tax relief, and that suggests that most would go all in the conventional route. But if you are right and they are entitled to both the max contribution to conventional schemes PLUS AE then yes it would be a boost to existing tax breaks. I don't see that happening.
 
Duke of Marmalade said:
I don't see massive abuse possibilities. I think they will still be subject to the max for claiming tax relief, and that suggests that most would go all in the conventional route. But if you are right and they are entitled to both the max contribution to conventional schemes PLUS AE then yes it would be a boost to existing tax breaks. I don't see that happening.
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If I'm right???? I never suggested it, twas you who suggested that John.
 
PebbleBeach2020 said:
If I'm right???? I never suggested it, twas you who suggested that John.
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Why the aggro? and I think trying to guess contributor's identities is against the rules of AAM.

You stated folk are not entitled to be in both, I clarified that they are. If for no other reason than to let them pay AVCs or save for a higher pension.

You posited that this could lead to abuses. Well it would only lead to an "abuse" if some could get more than the max tax relief currently allowed. I don't think that will be allowed to happen, which is not the same as saying they can't have both.
Chill out, gal :confused:
 
It's an interesting point.

It would seem reasonable for maximum annual tax-relieved pension contributions to be reduced by the amount of any State contributions under the AE scheme. But I don't anything to that effect in the design principles document.
 
Sarenco said:
It's an interesting point.

It would seem reasonable for maximum annual tax-relieved pension contributions to be reduced by the amount of any State contributions under the AE scheme. But I don't anything to that effect in the design principles document.
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Well it is a bit of a detail. And given recent agitation against the fat cats' 40% relief I see a possibility that all government subsidy will become 1 for 3. To think that in the original Strawman they carelessly thought the pensions would be tax free in payment.
 
Duke of Marmalade said:
And given recent agitation against the fat cats' 40% relief I see a possibility that all government subsidy will become 1 for 3.
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You could well be right.☹️

But contributions would also have to be relieved of PRSI and USC to achieve something close to a level playing field.
 
Sarenco said:
You could well be right.☹️

But contributions would also have to be relieved of PRSI and USC to achieve something close to a level playing field.
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For an abolition of the 40% relief you have the public service to get past first. The top-up makes no sense there as the pensions are unfunded.

I wonder what the outcome of the AE discussion would have been if civil servants weren't making significant use of the 40% relief themselves.

Not impossible they'd leave just the public service on 40% - but I think unlikely.
 
Duke of Marmalade said:
Why the aggro? and I think trying to guess contributor's identities is against the rules of AAM.

You stated folk are not entitled to be in both, I clarified that they are. If for no other reason than to let them pay AVCs or save for a higher pension.

You posited that this could lead to abuses. Well it would only lead to an "abuse" if some could get more than the max tax relief currently allowed. I don't think that will be allowed to happen, which is not the same as saying they can't have both.
Chill out, gal :confused:
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i didn't have aggressive. You misquoted me and said I said something when i said the complete opposite. "John" isn't your identify, I don't know you from Adam. In the same way as some idiots call each other "bud" where I'm from they call a fella "John" a bit of cockney rhyming slang for you there old stock. Put that on your toast chum ;)
 
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