4YP errors - Pension relief & stamp duty

civilserpant

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Two massive mistakes made that havent gotten coverage with the more headling grabbing minimum wage reductions.

The four yera plan bring the current pension (tax 41%/prsi 4%/levy 4%) reliefs from 49% in 2010, to 41% in 2011, 34% in 2012, 27% in 2013 and 20% in 2014. (page 94)

Stamp duty (page 99/100) is also being abolished/reformed (?) in 2012 as the property tax comes in. No details are given.

"In line with the commitments on tax expenditures in this Plan, reliefs and exemptions from CGT, CAT and Stamp Duty will either be abolished or greatly restricted to ensure that there is an adequate base for these taxes and that all of society makes a fair contribution to the correction of the public finances."

The effects will be this:
Vast swaythes of middle income 35k-99k people/families who have been saving for their future will no longer pay into private pension funds, increasing the burden on the state. Furthermore, the irish pension funds, will be less solvent and invest less in Irish companies and shares. The pension industry here is going to take a massive wallop, with big job losses and elss investment. All the time we're raiding the National Pension Pot to pay for banks!!!! gah!!!!

The Gov should simply have done two things. limit the amount of the relief to a sensible figure per year- ie: capped at 20k of a contribution and secondly said any lump sums from January 2011 or 2012, will be taxed at 100k onwards, instead of the 200k limit they introduced.


As for stamp duty. We're back where we wer ein sept 06-may 07, when people who want to sell their house will suddenly find activity stalled. Only a total risk taker will gamble on buying a house in Jan 2011 and paying the current stamp duty fee, with NO idea whether a credit system will be introduced to allow them off a new property tax from 2012 onwards.

While *some* people were seeking value in the current market, where they could get and afford a mortgage, you can expect the inevitable stagnation to have a very damaging effect on an already crippled housing market. This is a real worry for those currently in negative equity who wanted to crystalise their losses now and sell up - esp if emmigrating.
 


clunk

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A very well reasoned post, but what did you expect?? This current government have destroyed the future and seem content to reduce Ireland to a second rate, South American style Banana Republic.
 

seanmacc

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I'm actually shocked that people aren't more up in arms about the loss of pension tax relief. Particularly seeing that in 2 years time pension plans will be compulsory.

I think that we have also seen the end to rises in the state old age pension.
 

civilserpant

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And for those who hit the public service didnt take a hit. Bearing in mind a public servants is legally obliged to pay a set amount into their pension (for me 6.5% and the pension levy 7.8%) this has a huge effect.

A public servant, at the end of this, ignoring the 18,300-15,300 tax change on 50k a year will be €1,809 a year, or €69 a fortnight worse off due to the pension relief issue alone.
 

Berty

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I thinkit's fair to say that everyone (bar the super rich) have been hit.

Let's not forget that the devil of this monster will be in the detail of the budget, after which I strongly suspect that a lot more people will be very critical.
 

Berty

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I thinkit's fair to say that everyone (bar the super rich) have been hit.

Let's not forget that the devil of this monster will be in the detail of the budget, after which I strongly suspect that a lot more people will be very critical.
Sorry for quoting my own post, but some of the devil in the detail is out already in respect of cut backs to schools, which, what was it Gormely said again;

Freeze on permanent teaching positions: Freeze on permanent teaching jobs - RT News

and

Schools told to cut non-teacher pay: Schools told to cut non-teacher staff pay - RT News

I am not a teacher by the way - I am just interested in the way things will seep out from the 4 yr Plan
 

neutral_lurker

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Two massive mistakes made that havent gotten coverage with the more headling grabbing minimum wage reductions.

The four yera plan bring the current pension (tax 41%/prsi 4%/levy 4%) reliefs from 49% in 2010, to 41% in 2011, 34% in 2012, 27% in 2013 and 20% in 2014. (page 94)

The effects will be this:
Vast swaythes of middle income 35k-99k people/families who have been saving for their future will no longer pay into private pension funds, increasing the burden on the state. Furthermore, the irish pension funds, will be less solvent and invest less in Irish companies and shares. The pension industry here is going to take a massive wallop, with big job losses and elss investment. All the time we're raiding the National Pension Pot to pay for banks!!!! gah!!!!

The Gov should simply have done two things. limit the amount of the relief to a sensible figure per year- ie: capped at 20k of a contribution and secondly said any lump sums from January 2011 or 2012, will be taxed at 100k onwards, instead of the 200k limit they introduced.


.
I'm not really against the pension tax relief being lowered to 20% - the same as lower earners I mean they were going to have reduce something in the Budget and this is better than a touching the OAP for example.

The Govt giving you 41% or more back for pension contributions is unsustainable in the current bankrupt climate a lot PS and private sector workers are on an income more than 35,000 and 41% is just unsustainable as it is very generous.

One of the major problems for pension funds here is that they are too heavily invested in Irish companies.

Do you know how much commission pension consultants, fund managers, AVC providers take- they could do with a reduction in wages.
 

neutral_lurker

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20% Tax relief is a pretty good incentive, esp if gov. is going bust.

Property market already at standstill.
Yes thats what I think also.

This reduction in relief also affects the rich who funnel earnings into pensions for the generous reliefs and to avoid tax (legitimately)

Probably the most vocal opponents will be the pensions industry - brokers etc - harder to make commission big earnings and PS workers.
 

hmmm

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20% Tax relief is a pretty good incentive, esp if gov. is going bust.

Property market already at standstill.
It's not a relief, our pension system is (was) structured so that you pay tax in full when you take money out of a pension. In this new plan, you will pay tax when you put money into a pension and then have to pay tax again when you take it out. You're being taxed twice on the same money.

Reducing the tax allowance to 20% effectively ends the private sector pension, from now on only the public sector and those few private sector workers (mostly bankers ironically) with defined benefit pension schemes will be able to retire in any comfort. This is hardly for the public good.
 

civilserpant

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One of the major problems for pension funds here is that they are too heavily invested in Irish companies.

Do you know how much commission pension consultants, fund managers, AVC providers take- they could do with a reduction in wages.
I think you're missing the point with making an idle comment about the salaries of some working in pension companies... the heavily invested in irish companies is the big issue... that money wont be invested now...
 

civilserpant

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Yes thats what I think also.

This reduction in relief also affects the rich who funnel earnings into pensions for the generous reliefs and to avoid tax (legitimately)

Probably the most vocal opponents will be the pensions industry - brokers etc - harder to make commission big earnings and PS workers.
as i understand it, it means you'll be double taxed. You will pay the full 41% on the weekly pension earnings when you retire, so paying tax again now (which you dont with 41% relief) makes it very inefficient form of savings.
 

DeGaulle 2.0

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Maybe they should keep the 41% tax relief if the money is invested in Irish govt bonds.
 

harpsman

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Agree with you entirely(OP).
However I think you got your initial figures wrong-i think you only get 41% relief at moment-ie no relief from levies,prsi
Of course it would make more sense to cap relief at a sensible amount 20-25k to stop the likes of pat kenny putting half a million a year into his pension-btw new rules wont affect him as it doesnt apply to company directors-brilliant eh?
 

neutral_lurker

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I think you're missing the point with making an idle comment about the salaries of some working in pension companies... the heavily invested in irish companies is the big issue... that money wont be invested now...
Its not an idle comment about MOST who work in the pensions industry its a very lucrative area of financial services and any outcry from that sector is due to their commissions being affected.

Pensions funds should have diversified out of the Irish market anyway it is one of the main criticisms of the Irish funds and one of the reasons they have performed so badly.

You assume growth of about 6% on a pension over its lifetime, you will benefit from compound interest a not having to pay DIRT - it would be best to go through the numbers with an adviser you will not benefit as much as when on 41% relief but it still may prove worthwhile.

Bear in mind a lot of lower earners who are already getting 20% relief will most likely by the time they retire be in the higher tax band- so they have always had to deal with this scenario.

If there are cuts to be made - and there are due to circumstances I would prefer this.
 

Barnacle

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Yes thats what I think also.

This reduction in relief also affects the rich who funnel earnings into pensions for the generous reliefs and to avoid tax (legitimately)
This measure does not affect the rich who funnel earnings into pensions, in fact it protects them.
 

Barnacle

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Agree with you entirely(OP).
However I think you got your initial figures wrong-i think you only get 41% relief at moment-ie no relief from levies,prsi
Of course it would make more sense to cap relief at a sensible amount 20-25k to stop the likes of pat kenny putting half a million a year into his pension-btw new rules wont affect him as it doesnt apply to company directors-brilliant eh?
Under the current regime, both the employer and the employee gets PRSI and Health Levy Relief. Under the new regime only the employer will get the relief, the employer will still retain the relief when it is taken off the worker.
 


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