Why don't we eliminate age related contribution relief limits

SPC100

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501
I think we should eliminate the age related limits.

We have the pot limits which limit the maximum relief one can get.

We want to encourage people to fund their pensions.

Any contribution limit is a disincentive.


The more money folks get invested earlier the larger their final pension will be

People's earnings and ability to save over their life changes. If folks can't get relief they are more likely to fritter it away.

Some company owners 'unfairly' benefit by effectively having much higher limits.
 

SPC100

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501
Agreed on both.

I tried to cover the compound part in my point 'The more money folks get invested earlier the larger their final pension will be'

Another behavioural disadvantage is that the bigger limits later in life encourage procrastinating sorting out pension. And signal it's ok to contribute more later in life. This is the opposite of the signals and incentives we want to spend.
 

SPC100

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501
I'm in the privileged position where I'd love to get relief on more than the allowed limits in my pension
 

NoRegretsCoyote

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I tried to cover the compound part in my point 'The more money folks get invested earlier the larger their final pension will be'
There is huge ignorance on this: employees, industry professionals and policymakers alike.

When my kids turn 18 I am going to set them up PRSAs and make small contributions. Over 50 years the expected return will be very big.
 

Fergal19

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There is huge ignorance on this: employees, industry professionals and policymakers alike.

When my kids turn 18 I am going to set them up PRSAs and make small contributions. Over 50 years the expected return will be very big.
This is a great idea. If possible you could utilize the small gift exemption to create an investment account for them now. Then at 18 use this as the contribution to the PRSA. Would probably sort out their full pension for them at age 65!
 

MrEarl

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... If anything there should be an incentive to save more when young!
I'm good with incentivising younger people to invest in private pensions, but not with reducing contribution limits for older people.

By all means, let's get younger people saving for retirement, as soon as possible, but some just can't afford to - be it due to low earnings, high rent obligations or saving for a deposit for a house, having to raise young families etc. I see no reason not to continue to offer these categories of people incentives to load up their pensions later in life, when their circumstances change.

Ultimately, what's needed is for everyone to end up with a private pension, regardless of when they fund it.

What's vital, in my opinion, is the need for government action. The government needs to address the elephant in the room, regarding its inability to cover future state pensions at any sort of reasonable levels, and get everyone focused on making personal arrangements. Governments failure to attend to this, simply encourages people to be complacent about their retirement planning.
 

elacsaplau

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803
Hi MrEarl,

All I'm saying is that it's age discrimination - do you agree that it's age discrimination?
 
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elacsaplau

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Hi NoRegrets,

I fully agree that the discrimination that I spoke of is not unique within our tax and benefits system. All I continue to say is that it's age discrimination. It seems like everyone accepts this?
 
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NoRegretsCoyote

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I would call it differential treatment. It has a valid rationale and is approved by legislation and applied equally.

Discrimination is more when you arbitrarily deny someone something on age grounds.
 

SPC100

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501
I would propose a) Remove the limits completely or b) Set it at 40% regardless.

Do remember that some other people/pension products are not actually limiited by these limits. i.e. this limit is not applied to everyone who has a pension.

This is a second element of unfairness.
 

elacsaplau

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It has a valid rationale and is approved by legislation and applied equally.
The validity is not what I was questioning. Differentiating between people on the grounds of age is age discrimination by definition! It may very well be completely justifiable - I never said that it wasn't...….:);)
 

fayf

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Changing the limits could have impacts on government tax receipts. The income limit of 115k, is generous in the first place and the age related %’s are also generous. They are significantly more generous than the U.S. for example, where the standard Employee 401k annual limit is currently $19,500.
 

kevhenry

Registered User
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96
There's also a slight gender bias when it comes to executive pension funding which greatly annoyed a client of mine.

Revenue allow a capitalisation factor to determine the maximum fund size allowed for a company employee and these multipliers are ranked in the following order (from largest to smallest);
  1. Married Man.
  2. Married Woman.
  3. Single Woman.
  4. Single Man.
The difference in fund values can be quite big when all the input factors are the same except gender. For example, a 55 year old married man earning €80,000 a year can build a maximum fund of €1,386,000 by age 68 while a married woman of the same age and €80,000 salary is limited to the lesser figure of €1,253,333 at age 68. That's an entitlement reduction of €132,667.

At the highest level of difference, a salary of €115,000 would allow a married man a fund of €1,993,333 while the comparible fund for a woman would be €1,801,667 which is a difference of €191,666.

There's also a considerable gap if you're single vs married in each case (although this differential is more pronounced for men) with the logic being that a company director could have a financially dependant wife/husband which necessitates the increased allowance.

However, there's no reduction in that director's own funding capacity if, for example, they decide to also start maximum funding for their spouse through the same company.

Kevin
www.thepensionstore.ie
 
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