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Tackling this pension issue


adrem

Well-known member
Joined
May 27, 2004
Messages
924
There has been a lot of talk of how it is impossible to reduce pensions in payment and how the only way to resolve the AIB (and other bank) pensions issue is to request a voluntary reduction from the pensioners. Not actually true.

The current programme for government states that the government will cap tax payers subsidies to all pensions that pay an income in retirement of more than 60,000

this change is widely expected in the budget and will generate c380-400M in savings

the issue with pensions in payment (AIB etc) can be handled using the same principle -

1) pensions that have been secured in the form of an annuity can't be "reversed" but taxation changes can be made such that annuities in payment in excess of 60,000 carry an additional tax charge or levy. This would apply at source, could be implemented in the budget at no cost to the taxpayer and would generate substantial additional tax revenues

2) pensions that are being paid from a pension scheme could also be targeted in this manner.

3) when a pension scheme is being wound up (as the AIB scheme arguably should have been as it was clearly insolvent !!) the pensions in payment are prioritised. This means that already retired people are treated differently from those pre-retirement. There are loads of good reasons for that - however in the current context and given the move to a 60k cap on tax payer subsidised pension plans, a change to the priority order should be introduced which protects the first 60k of pensions in payment only and the remainder is treated in the same was as the pre-retirement people. Again a simple budget announcement would achieve this result.

4) approved retirement funds (ARF) are often used now rather than buying a pension - they give flexibility, ownership, control etc - at the moment 5% is deemed to have been withdrawn from an ARF each year and income taxes are payable on this whether the ARF holder actually draws down that 5% or not. Given that they will subsequently pay income taxes on any drawdowns, the majority will draw down at least 5% each year to avoid double taxation. Where the ARF is >2M then this rate is upped to 6%.

A simple change here would be to continue to operate the 5% deemed withdrawal on ARFs of up to €1.2M. I'd bin the 6% rate as it is an unnecessary complication. On the portion of an ARFs > 1.2M I'd operate a sliding scale of deemed withdrawal. 6% on the portion up to €2M, 10% on the portion between 2M and 5M and 20% on the amount over 5M. I'd also apply the same additional tax charge on ARF withdrawals over 60k (as per that outlined in 1 above). The measure could be implemented in the budget and again would have no implementation cost for the exchequer and would immediately deal with the issue of big "pension pots" for retirees.

All simple - all can be done immediately and would generate significant funds without cost to the exchequer to implement. Its about will to tackle the issue rather than means to tackle it !
 
B

birthday

There has been a lot of talk of how it is impossible to reduce pensions in payment and how the only way to resolve the AIB (and other bank) pensions issue is to request a voluntary reduction from the pensioners. Not actually true.

The current programme for government states that the government will cap tax payers subsidies to all pensions that pay an income in retirement of more than 60,000

this change is widely expected in the budget and will generate c380-400M in savings

the issue with pensions in payment (AIB etc) can be handled using the same principle -

1) pensions that have been secured in the form of an annuity can't be "reversed" but taxation changes can be made such that annuities in payment in excess of 60,000 carry an additional tax charge or levy. This would apply at source, could be implemented in the budget at no cost to the taxpayer and would generate substantial additional tax revenues

2) pensions that are being paid from a pension scheme could also be targeted in this manner.

3) when a pension scheme is being wound up (as the AIB scheme arguably should have been as it was clearly insolvent !!) the pensions in payment are prioritised. This means that already retired people are treated differently from those pre-retirement. There are loads of good reasons for that - however in the current context and given the move to a 60k cap on tax payer subsidised pension plans, a change to the priority order should be introduced which protects the first 60k of pensions in payment only and the remainder is treated in the same was as the pre-retirement people. Again a simple budget announcement would achieve this result.

4) approved retirement funds (ARF) are often used now rather than buying a pension - they give flexibility, ownership, control etc - at the moment 5% is deemed to have been withdrawn from an ARF each year and income taxes are payable on this whether the ARF holder actually draws down that 5% or not. Given that they will subsequently pay income taxes on any drawdowns, the majority will draw down at least 5% each year to avoid double taxation. Where the ARF is >2M then this rate is upped to 6%.

A simple change here would be to continue to operate the 5% deemed withdrawal on ARFs of up to €1.2M. I'd bin the 6% rate as it is an unnecessary complication. On the portion of an ARFs > 1.2M I'd operate a sliding scale of deemed withdrawal. 6% on the portion up to €2M, 10% on the portion between 2M and 5M and 20% on the amount over 5M. I'd also apply the same additional tax charge on ARF withdrawals over 60k (as per that outlined in 1 above). The measure could be implemented in the budget and again would have no implementation cost for the exchequer and would immediately deal with the issue of big "pension pots" for retirees.

All simple - all can be done immediately and would generate significant funds without cost to the exchequer to implement. Its about will to tackle the issue rather than means to tackle it !

Well argued. I would largely agree.
However I would also fully tax all pension lump sums-this would also be socially fair and just and raise €350-400 million per annum

I would take issue with your comment about the AIB pension scheme:
''as the AIB scheme arguably should have been as it was clearly insolvent !!''

The taxpayer has no role in AIB or BOI pension schemes. Not a red cent of taxpayers money should go near these DB schemes.
It is outrageous that this appears to be acceptable to TDs and the general public although there is some opposition to senior executive pensions!
We hear today of home help being cut for the elderly while we borrow money to fund bankers pensions (not just management)

Waterford Crystal workers were left to the wolves- Let bankers pay for their own pensions whether in management or other grades.


Perhaps Ruairi Quinn could explain why taxpayers money has been used to shore up the pension funds of AIB and BOI

http://www.google.ie/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&sqi=2&ved=0CBwQFjAA&url=http://www.rte.ie/news/2012/1108/ruair-quinn-pensions.html&ei=YbWbUPKnDs-YhQeH94HwCQ&usg=AFQjCNHuKmuL8jMOiTJsDcTa8aBGPPBwUg
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
No pensioner needs an income after retirement of more than €36,000

Also YOU MUST be 68 or so to start drawing it down.

Fair is fair :)
 
B

birthday

No pensioner needs an income after retirement of more than €36,000

Also YOU MUST be 68 or so to start drawing it down.

Fair is fair :)
Have you gone barking mad?
For a multitude of reasons people retire before 65- sickness, chronic ill health, to look after a loved one, unemployment or unemployable etc.
Many workers in the economy who were middle aged when this recession hit will never work again. This happened in the 1980s recession.
Why should such individuals not be allowed to tap into their pension scheme (as long as revenue rules are followed) at this stage.
What possible reason could you have for not letting these people access their own money?

What we need to do is
1) withdraw all support from bank pension funds where taxpayers money was used to fill the insolvent schemes. The idiots thought they could retire on 2/3rds final salary with 3% contribution, now they want the taxpayer to fund this 'entitlement'.

2) Tax the full amount of all pension lump sums

3)Immediately remove all tax relief for pension contributions above €30k per annum

4) Refuse to fund any public pension above €40k through changing terms of all new contracts and additional levy for existing beneficiaries

5) Land a naked Ruairi Quinn by helicopter on Inishvickillaun for the winter months as punishment for his statement today defending rich and incompetent management of AIB and his continuing refusal to ensure fair play in this society. One week later land a pack of hunting dogs on said island.

http://www.google.ie/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&sqi=2&ved=0CBwQFjAA&url=http://www.rte.ie/news/2012/1108/ruair-quinn-pensions.html&ei=YbWbUPKnDs-YhQeH94HwCQ&usg=AFQjCNHuKmuL8jMOiTJsDcTa8aBGPPBwUg
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
Birthday

If they retire before 68 do they not qualify for other social welfare payments.

Whatever the criteria for state non contributory pension OR if necessary get a pension committee together to come up with a FAIR SYSTEM.
 

Orchard Rebel

Well-known member
Joined
Nov 16, 2010
Messages
327
There has been a lot of talk of how it is impossible to reduce pensions in payment and how the only way to resolve the AIB (and other bank) pensions issue is to request a voluntary reduction from the pensioners. Not actually true.

The current programme for government states that the government will cap tax payers subsidies to all pensions that pay an income in retirement of more than 60,000

this change is widely expected in the budget and will generate c380-400M in savings

the issue with pensions in payment (AIB etc) can be handled using the same principle -

1) pensions that have been secured in the form of an annuity can't be "reversed" but taxation changes can be made such that annuities in payment in excess of 60,000 carry an additional tax charge or levy. This would apply at source, could be implemented in the budget at no cost to the taxpayer and would generate substantial additional tax revenues

2) pensions that are being paid from a pension scheme could also be targeted in this manner.

3) when a pension scheme is being wound up (as the AIB scheme arguably should have been as it was clearly insolvent !!) the pensions in payment are prioritised. This means that already retired people are treated differently from those pre-retirement. There are loads of good reasons for that - however in the current context and given the move to a 60k cap on tax payer subsidised pension plans, a change to the priority order should be introduced which protects the first 60k of pensions in payment only and the remainder is treated in the same was as the pre-retirement people. Again a simple budget announcement would achieve this result.

4) approved retirement funds (ARF) are often used now rather than buying a pension - they give flexibility, ownership, control etc - at the moment 5% is deemed to have been withdrawn from an ARF each year and income taxes are payable on this whether the ARF holder actually draws down that 5% or not. Given that they will subsequently pay income taxes on any drawdowns, the majority will draw down at least 5% each year to avoid double taxation. Where the ARF is >2M then this rate is upped to 6%.

A simple change here would be to continue to operate the 5% deemed withdrawal on ARFs of up to €1.2M. I'd bin the 6% rate as it is an unnecessary complication. On the portion of an ARFs > 1.2M I'd operate a sliding scale of deemed withdrawal. 6% on the portion up to €2M, 10% on the portion between 2M and 5M and 20% on the amount over 5M. I'd also apply the same additional tax charge on ARF withdrawals over 60k (as per that outlined in 1 above). The measure could be implemented in the budget and again would have no implementation cost for the exchequer and would immediately deal with the issue of big "pension pots" for retirees.

All simple - all can be done immediately and would generate significant funds without cost to the exchequer to implement. Its about will to tackle the issue rather than means to tackle it !
Whilst punishing the bankers and saving a few hundred million per annum may satisfy some, what about the downsides? The OECD estimates that the number of workers now actively saving for a pension in Ireland may be less than 40%. Any reduction in tax relief is unlikely to encourage those not saving for a pension to do so or to incentivise those who can to continue to do so. What's the point in contributing to a pension plan with, say, 20% tax relief when you know that you'll be being taxed at 40% plus on exit?

Meanwhile, those that can afford to are simply likely to circumvent the problem by investing in products elsewhere - perhaps not in Ireland at all - thus sucking more money out of the economy at a time when we could use it.

When NZ did something similar to this in the 90s, the number of people saving for pensions (and by extension the pension industry) fell off a cliff and never recovered. The Kiwisaver auto-enrolment scheme, which was designed in part to reverse this disaster, can hardly be described as a resounding success.

Thus we are likely to end up with great majority of the workforce not saving for their pension. What happens when those people reach age 67 or 68? Well unless their (currently in negative equity) properties really turn out to be their pension - i.e. we have another bubble - they will have to rely on the State Pension - thus increasing the long-term burden on the State at a time when there will be fewer workers than ever to fund them. It seems that the "pensions time bomb", on which the Government based its 2010 pensions review, has been quickly and conveniently forgotten.

Reducing tax relief on pensions to save money is fine in short-term budgetary terms but is certain to create a social welfare issue in the long-term. Reducing tax relief on pensions just to punish bankers is plain daft.
 

Picasso Republic

Well-known member
Joined
May 31, 2011
Messages
2,446
Absolutely

And they MUST be 68 before they draw it down ( or whatever the qualifing criteria is for non contributory OAP )
Jeez - I'm almost in agreement with a commie.

A cap should be placed on employer funded pensions as you say and regardless these pensions should only be drawn down after the official retirement age has been reached.

However people should continue to be permitted to invest a proportion of their income in private self funded pension schemes.
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
Whilst punishing the bankers and saving a few hundred million per annum may satisfy some, what about the downsides? The OECD estimates that the number of workers now actively saving for a pension in Ireland may be less than 40%. Any reduction in tax relief is unlikely to encourage those not saving for a pension to do so or to incentivise those who can to continue to do so. What's the point in contributing to a pension plan with, say, 20% tax relief when you know that you'll be being taxed at 40% plus on exit?
How do you know what rate it will be taxed at ?

It could be 41% or it could very well be 20%
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
Jeez - I'm almost in agreement with a commie.

A cap should be placed on employer funded pensions as you say and regardless these pensions should only be drawn down after the official retirement age has been reached.

However people should continue to be permitted to invest a proportion of their income in private self funded pension schemes.
Absolutely, at 20% tax relief.
 
B

birthday

Birthday

If they retire before 68 do they not qualify for other social welfare payments.

Whatever the criteria for state non contributory pension OR if necessary get a pension committee together to come up with a FAIR SYSTEM.
Revenue currently allow individuals to retire as early as 60 (according to certain rules and regardless of entitlement to any welfare).
If ill health is an issue then retirement can be even younger.

I suppose you banker friends would be excluded from your 'new brave world'!
 
B

birthday

Absolutely, at 20% tax relief.


How will we get the taxpayers money back from AIB and BOI defined benefit schemes to fit in with this ?

Or is this yet another case of pulling up the ladder by the older set?
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
Absolutely not, but saying that I know of bankers that retired at 50.

Hard life !!!!!
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
How will we get the taxpayers money back from AIB and BOI defined benefit schemes to fit in with this ?

Or is this yet another case of pulling up the ladder by the older set?
How many are in the defined benefit scheme at AIB ?
 

Howya

Well-known member
Joined
Feb 29, 2012
Messages
1,690
Whilst punishing the bankers and saving a few hundred million per annum may satisfy some, what about the downsides? The OECD estimates that the number of workers now actively saving for a pension in Ireland may be less than 40%. Any reduction in tax relief is unlikely to encourage those not saving for a pension to do so or to incentivise those who can to continue to do so.
I would expect (without any direct knowledge) that the figure of 40% is likely to cover many low/middle income employees who simply don't have any excess spare cash at the end of the month to put into a pension. Changing the marginal tax rates is not likely to influence pension saving behaviour for this group.
 

hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,514
Allowing tax relief at 20% and not 41% means that employees will have more take home pay :) to spend in the economy.

If they wish they can save that additional disposable income for their retirement.
 

Orchard Rebel

Well-known member
Joined
Nov 16, 2010
Messages
327
I would expect (without any direct knowledge) that the figure of 40% is likely to cover many low/middle income employees who simply don't have any excess spare cash at the end of the month to put into a pension. Changing the marginal tax rates is not likely to influence pension saving behaviour for this group.
The fall in workers actively saving for pensions since 2007 - perhaps 10-15%, maybe more - suggests otherwise. I can't think of a country with similar pension structures to ours which operates successfully on that basis.
 

Orchard Rebel

Well-known member
Joined
Nov 16, 2010
Messages
327
How do you know what rate it will be taxed at ?

It could be 41% or it could very well be 20%
That's just the point. Are you going to risk paying into something over 20/30 years on the off chance that you might fall into the standard income tax category. I can't see many current 41% tax payers bothering to do that.
 

hammer

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Joined
Jul 6, 2009
Messages
58,514
That's just the point. Are you going to risk paying into something over 20/30 years on the off chance that you might fall into the standard income tax category. I can't see many current 41% tax payers bothering to do that.
20% tax relief is more than enough.

We are overspending by €18 billion per annum.
 
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