When will the government start taxing lump sum pension payments?

jimmmy

The "gratuity" lump sum of one and a half years salary which some people receive when they retire ( as well as their normal weekly / monthly pension )....I understand this is tax free ?
If so, given the state of the countries finances, is it not time to tax this one-off payment / cheque, said to average over 100,000 euro ? Do the people who currently receive this one off payment really need it to be tax free...after all they still also have a pension well in excess of the normal old age pension , most would have their kids reared, mortgage paid off etc.

Sponge Bob

Only cops and maybe prison officers get 1.5 times salary the rest are a year or less . It is tax free but the government has indicated a change will be made in the next budget which has led to a massive clearout of top of the scale Garda Supers and Teachers over the past 6 months.

450 guards retired in the first 6 months of 2009 and the total for the year is likely to be 1000 as against a normal 500 retirements per annum

http://www.corkman.ie/news/public-safety-fears-as-gardai-jump-ship-1866170.html

P. Breathnach

Sponge Bob wrote: »

Only cops and maybe prison officers get 1.5 times salary the rest are a year or less ...

Not so. Everybody who has completed the full period of pensionable service (40 years in most cases) gets what is quaintly expressed as a lump sum of 60/40ths of final pay, and a pension of 40/80ths.

jimmmy

P. Breathnach wrote: »

Not so. Everybody who has completed the full period of pensionable service (40 years in most cases) gets what is quaintly expressed as a lump sum of 60/40ths of final pay, and a pension of 40/80ths.

Thank you. 60/40ths of final pay is the same as one and a half years salary. The question remains : given the state of the countries finances, is it not time to tax this one-off payment ?

Diarmuid

jimmmy wrote: »

The question remains : given the state of the countries finances, is it not time to tax this one-off payment ?

So this is in fact an income? If so then I don't see why it should not be taxed like normal income. Regardless of the state of the country's finances.

jimmmy

Why does the govt not tax it so ? It would yield a lot of badly needed tax / money.

Diarmuid

jimmmy wrote: »

It would yield a lot of badly needed tax / money.

Probably would only raise a pittance.

omahaid

Diarmuid wrote: »

Probably would only raise a pittance.

Hardly reason not to tax it though.

jimmmy

Diarmuid wrote: »

Probably would only raise a pittance.

a back of an envelope guesstimate ...how many people retire each year with this tax free lump sum of over 100,000....say 30,000...if each of these paid just 50,000 income tax on that single cheque each, that would yield 15 million euro per year....hardly a pittance. Especially when you remember the govt is currently borrowing so much.

ardmacha

If so then I don't see why it should not be taxed like normal income

A lump sum is presumably an alternative in some sense to paying a higher annual pension. The only issue is that paid in one year it might attract the top rate of tax while spread out it would only have attracted the lower rate.

jimmmy

tax it at the top rate of tax so. For example, its not good enough, given the state of the countries finances, that over 300,000 people get the taxpayer to give them a handout of over 100,000 of borrowed money tax free when they retire as well as a high annual pension.

P. Breathnach

ardmacha wrote: »

A lump sum is presumably an alternative in some sense to paying a higher annual pension...

My understanding is that it is exactly that. I was told many years ago, but cannot give any citation in support, that when the scheme was introduced public servants were asked to choose between the formula that now applies and an alternative of a pension of 2/3rds final salary. On that thinking, the lump sum might be considered as an amount given to pay for a top-up pension. I suspect that very few lump sums are actually used that way.

jimmmy

P. Breathnach wrote: »

I suspect that very few lump sums are actually used that way.

What, do you suspect , are these tax free lump sums of over 100,000.00 euro, are spent on so ?

ardmacha

Well there would an inequity if you generally fall into a sum of money you are only liable to CGT, but if your pension lump sum would be taxed at a much higher rate.

P. Breathnach

jimmmy wrote: »

What, do you suspect , are these tax free lump sums of over 100,000.00 euro, are spent on so ?

Helping offspring with house deposits, nursing home care in some cases, and much is salted away for the security it offers, and finds its way into inheritances.

jimmmy

P. Breathnach wrote: »

Helping offspring with house deposits,

So the pension lump sum handout was partly to blame for the property bubble in this country ? All those retired p.s. with a lump sum of over 100,000.00 and they used it to fuel the property bubble ?

P. Breathnach wrote: »

nursing home care in some cases,

given people retire between their fifties ( in the case of many Gardai I know ) and mid sixties, not too many would immediately go in to a nursing home....in fact some Gardai have will live 30 or 40 years in to their retirement, and have a guaranteed pension second to none in the policeing world.

P. Breathnach wrote: »

and much is salted away for the security it offers, and finds its way into inheritances.

But why should the government not at least tax this windfall, if it has to be paid at all ?

P. Breathnach

jimmmy wrote: »

... But why should the government not at least tax this windfall, if it has to be paid at all ?

It's not a windfall, because it is paid for under the terms of the pension scheme.

Many private sector pension schemes resolve into a lump sum on retirement date, with the intention that the lump sum be used to purchase a pension. Such lump sums, I understand, are not taxed.

Whatever decision is made should apply equally to private and public sectors.

jimmmy

P. Breathnach wrote: »

It's not a windfall,

over 100,000 euro is tax free is not a windfall, for those already on a guaranteed state pension of an average of 30,000 ?

P. Breathnach wrote: »

because it is paid for under the terms of the pension scheme.

I have asked a few retired people I know ( eg Gardai ) how much they ever paid in to their pension, and I asked someone in the life assurance industry how much this individual Gardais pension is worth / would cost ( over a million ) ....everyone who reired recently or who will retire recently has not paid the full economic cost of a govt public service pension / lump sum handout. Far from it.

P. Breathnach wrote: »

Many private sector pension schemes resolve into a lump sum on retirement date,

The vast majority of people retiring in the private sector do not get lump tax free siums of over 100k on retirement as well as pensions of an average of 30 k lol lol. ....certainly none are paid from money borrowed by the exchequer.

dvpower

Wasn't this question addressed in the Commission on Taxation report? I think there was a proposal to tax lump sums over €200,000

parsi

jimmmy wrote: »

The vast majority of people retiring in the private sector do not get lump tax free siums of over 100k on retirement as well as pensions of an average of 30 k lol lol. ....certainly none are paid from money borrowed by the exchequer.

Do you have figures for this ?

Or is it just like a builder's back of the envelope calculation (i.e made up) ?

dvpower

parsi wrote: »

Do you have figures for this ?

Or is it just like a builder's back of the envelope calculation (i.e made up) ?

A Civil Servant retiring on €66,666 would get a €100,000 lump sum (60/40) and an annual pension of €33,333 (40/80) assuming 40 years service.

I'm not sure what the average retirement salary in the PS is but I wouldn't imagine that this is too far off the mark. For example, the top of the Executive Officer (a mid level grade) scale is around €53,000. This would equate to a lump sum of just about €80,000 and an annual pension of €26,500.
A Higher Executive Officer would be touching the €100,000

P. Breathnach

jimmmy wrote: »

over 100,000 euro is tax free is not a windfall, for those already on a guaranteed state pension of an average of 30,000 ?

It's not a windfall, because it is not an unexpected and unearned gain. It is part of the remuneration package of public servants.

I have asked a few retired people I know ( eg Gardai ) how much they ever paid in to their pension, and I asked someone in the life assurance industry how much this individual Gardais pension is worth / would cost ( over a million ) ....everyone who reired recently or who will retire recently has not paid the full economic cost of a govt public service pension / lump sum handout. Far from it.

I never said, nor do I believe, that the public service pension schemes are a bad deal for employees. They are very good (less good because of recent changes to the schemes, but still good). Like many pension schemes, there is an employer contribution component but, because of the way public accounts have been done, that element is not factored out and shown separately.

The vast majority of people retiring in the private sector do not get lump tax free siums of over 100k on retirement as well as pensions of an average of 30 k lol lol. ....certainly none are paid from money borrowed by the exchequer.

Is that any answer to my point that the taxation treatment of private and public sector pensions should be the same?

jimmmy

dvpower wrote: »

A Civil Servant retiring on €66,666 would get a €100,000 lump sum (60/40) and an annual pension of €33,333 (40/80) assuming 40 years service.

I'm not sure what the average retirement salary in the PS is but I wouldn't imagine that this is too far off the mark.

correct, given average p.s. wages of 966 per week across over 300,000 people

jimmmy

dvpower wrote: »

Wasn't this question addressed in the Commission on Taxation report? I think there was a proposal to tax lump sums over €200,000

Correct, but why not tax all lump sums from both private and public sector pensions ....

jimmmy

P. Breathnach wrote: »

I never said, nor do I believe, that the public service pension schemes are a bad deal for employees.

Of course they are not a bad deal for those employees who get them.

They are however a bad deal for the exchequer, and have greatly contributed to the drain on public finances. ....currently running at a deficit of what 20 or 22 billion per year .

parsi

dvpower wrote: »

A Civil Servant retiring on €66,666 would get a €100,000 lump sum (60/40) and an annual pension of €33,333 (40/80) assuming 40 years service.

I'm not sure what the average retirement salary in the PS is but I wouldn't imagine that this is too far off the mark. For example, the top of the Executive Officer (a mid level grade) scale is around €53,000. This would equate to a lump sum of just about €80,000 and an annual pension of €26,500.
A Higher Executive Officer would be touching the €100,000

That's an answer , but not to the question posed which was in relation to

jimmmy wrote:

The vast majority of people retiring in the private sector do not get lump tax free siums of over 100k on retirement as well as pensions of an average of 30 k lol lol. ....certainly none are paid from money borrowed by the exchequer.

dvpower

jimmmy wrote: »

Correct, but why not tax all lump sums from both private and public sector pensions ....

That is what's been proposed.

taxcommission.ie wrote:

We recommend that

• €200,000 of that lump sum should be tax-free
• The excess of that lump sum over €200,000 should be taxable at the standard rate

jimmmy

dvpower wrote: »

That is what's been proposed.

But why should the first 200,000 of this handout cheque be tax free at all , given the state of the countries finances ?

dvpower

jimmmy wrote: »

But why should the first 200,000 of this handout cheque be tax free at all , given the state of the countries finances ?

It shouldn't. If the Government allow a tax relief on pension contributions, then they should tax this money when it matures.

However, if they stop the tax relief on pension contributions (and there are some signs that they might do this), then they shouldn't tax pensions (either lump sums or annuity payments) when they are paid out.

dvpower

parsi wrote: »

That's an answer , but not to the question posed which was in relation to

Quite right - my misreading.

A quick calculation of what I need to pay into my personal pension to get €30,000 pa and a €100,000 lump sum puts me living on bread and water 'till I'm 65.

jimmmy

dvpower wrote: »

A quick calculation of what I need to pay into my personal pension to get €30,000 pa and a €100,000 lump sum puts me living on bread and water 'till I'm 65.

I think 9 out of ten private sector people would be living on bread and water if they were to pay into their personal pensions to get a guaranteed €30,000 pa and a €100,000 lump sum , like the average public servant gets on retirement. Time for the bulk of the people to rise up before the country is sucked dry altogether.

dfbemt

jimmmy wrote: »

correct, given average p.s. wages of 966 per week across over 300,000 people

As a public servant even I know that 966 per week at 52 weeks of the year does not equal €66,666.

Now that confirms that I am worth every single cent of my pension.

parsi

jimmmy wrote: »

But why should the first 200,000 of this handout cheque be tax free at all , given the state of the countries finances ?

Leaving aside Pubic Sector pensions the whole idea of tax relief on pensions (and lump sums) was to ensure that folk made provision for the future.

So banks and many other large companies all had generous defined benefit schemes (in 2003 this stood at 67% coverage http://www.mhc.ie/news-+-events/legal-articles/328/ ). Other schemes were even more generous for senior management who could divert vast amounts of income into nebulous pension funds.

Problems then arose when the various companies inhouse funds got crushed by retirees and acquisitions but also when folk who didn't have access to realtively cheap defined benefit schemes held off from joining other pension schemes due to cost ( and as we all know that gets higher with age).

Of course the green eyed monster also reaered its head when folk who sqaundered their Celtic Tiger riches (plumbers, sparkies, chippes) realised that they had only the means-tested State Pension to look forward to.

So is this thread about taxing Public Sector lumpsums or is there also vitriol being scattered over all lumpsums ?

jimmmy

dfbemt wrote: »

As a public servant even I know that 966 per week at 52 weeks of the year does not equal €66,666.

Nobody claimed it was. Please note the average public sector wage, now that you mention it, is not the same as the average wage of those people retiring from the public service, due to promotions, age etc etc.

jimmmy

parsi wrote: »

Leaving aside Pubic Sector pensions the whole idea of tax relief on pensions (and lump sums) was to ensure that folk made provision for the future.

Correct. Just as people were encouraged to make " provision for the future" by investing in section 23 , section 27 and section 50 schemes , which had the side benefit of providing a good supply of decent quality accomodation for people to rent.

parsi wrote: »

Of course the green eyed monster also reaered its head when folk who sqaundered their Celtic Tiger riches (plumbers, sparkies, chippes) realised that they had only the means-tested State Pension to look forward to.

And the same people, seeing their savings in savings accounts being eroded by inflation and dirt tax etc, decided to invest in section 23 / section 50 property etc, and or shares etc, in order to make provision for their future. Now they are being kicked when they are down. They feel swindled, and see their stamp duty / taxes etc being used to pander those who took no risks. Last time they will invest in Ireland.

parsi wrote: »

So is this thread about taxing Public Sector lumpsums or is there also vitriol being scattered over all lumpsums ?

All lumpsums. A very small minority of those in the private sector also receive lumpsums tax free on retirement of 100,000 or more, like the average retiring public servant does.

parsi

jimmmy wrote: »

All lumpsums. A very small minority of those in the private sector also receive lumpsums tax free on retirement of 100,000 or more, like the average retiring public servant does.

Are there statistics on that ?

jimmmy

parsi wrote: »

Are there statistics on that ?

1.5 times average salary on retirement age....or as a public sector worker confirmed, 60/40 ! lol

P. Breathnach

jimmmy wrote: »

1.5 times average salary on retirement age....or as a public sector worker confirmed, 60/40 ! lol

You were asked for statistics, not for another attempt at a cheap shot.

[I am not a public service worker; I am a public service pensioner. But accuracy is not your strong suit.]

parsi

jimmmy wrote: »

1.5 times average salary on retirement age....or as a public sector worker confirmed, 60/40 ! lol

I think that even the dumbest red-top reader knows the formula by now

However I'm looking for your statistics of the numbers of people who are in receipt of such lumpsums as described - you can provide a total or break it down into public & private.

jimmmy

P. Breathnach wrote: »

Not so. Everybody who has completed the full period of pensionable service (40 years in most cases) gets what is quaintly expressed as a lump sum of 60/40ths of final pay, and a pension of 40/80ths.

Your own post from earlier in this thread, no less. I even thanked you for it at the time. One and a half times annual salary is 60/40th of final pay, in public service clarity, is it not ? Not only that, but the p.s.pension is linked to future increases eg those who retired say ten or fifteen years ago are now getting half of what people on a similar grade are now getting!

To get back to the thread, given the dire state of public finances, when will the government start taxing lump sum pension payments? ( all lump sum payments, from all sectors ).

erictheviking

jimmmy wrote: »

a back of an envelope guesstimate ...how many people retire each year with this tax free lump sum of over 100,000....say 30,000...if each of these paid just 50,000 income tax on that single cheque each, that would yield 15 million euro per year....hardly a pittance. Especially when you remember the govt is currently borrowing so much.

30,000???:rolleyes: Where you getting that from:D. There are roughly 300,000 public sector...I reckon there would normally be 3000-4000 retirements per year. None of these staff are replaced. You haven't mentioned the fact either that you need to work 40 years to get the full amount. I reckon most of these don't have that kind of service. There will be a unusually large amount retiring this year to avoid the govt. taxing this from 2010 onwards.
I think 90% of people who retire (even with 40 years service) would not get anywhere near 100K.

P. Breathnach

jimmmy wrote: »

Your own post from earlier in this thread, no less. I even thanked you for it at the time. One and a half times annual salary is 60/40th of final pay, in public service clarity, is it not ? Not only that, but the p.s.pension is linked to future increases eg those who retired say ten or fifteen years ago are now getting half of what people on a similar grade are now getting!

I know what I wrote: it is not a statistic. You can not legitimately cite it as a statistic.

To get back to the thread, given the dire state of public finances, when will the government start taxing lump sum pension payments? ( all lump sum payments, from all sectors ).

It is interesting how you seem to focus on getting back to a very tight view of being on-topic when you are challenged on something. Let me remind you that your very post in this thread was clearly aimed at the public service pension scheme.

ronbyrne2005

My father retired from council this year. He got nearly 100k lump sum tax free and 2/3's of his average salary over past 3 years and because he had a load of overtimeover past 3 years his pension is nearly 700 a week gross.He is only in late fifties so could be getting this pension into his 90s if he lived that long and if he dies before my mother she gets 1/3 of his final salary till death. Pension is worth well over a million and he probably only paid about 150k into the superannuation scheme.

jimmmy

ronbyrne2005 wrote: »

My father retired from council this year. He got nearly 100k lump sum tax free and 2/3's of his average salary over past 3 years and because he had a load of overtimeover past 3 years his pension is nearly 700 a week gross.He is only in late fifties so could be getting this pension into his 90s if he lived that long and if he dies before my mother she gets 1/3 of his final salary till death. Pension is worth well over a million and he probably only paid about 150k into the superannuation scheme.

Thank you for that. Would he even have paid 150k in to the superannuation scheme....bearing in mind how low wages etc were everywhere several decades ago ?

jimmmy

parsi wrote: »

I think that even the dumbest red-top reader knows the formula by now

However I'm looking for your statistics of the numbers of people who are in receipt of such lumpsums as described - you can provide a total or break it down into public & private.

I do not know the exact "statistics of the numbers of people who are in receipt of such lumpsums as described ". Maybe the ultra efficient lol cso can help you there ? lol. I care even less about a public and private breakdown...but now that you mention it, its probably safe to assume the vast majority of those lucky enough to recive lump sums which must average close to 100,000 are from the public service. The is because everyone in the 300,000 plus public service is entitled to one ( tax free of course ) at the end of the required period of service , and very few people in the private sector receive a 100,000 tax free cheque on retirement.

P. Breathnach

ronbyrne2005 wrote: »

My father retired from council this year. He got nearly 100k lump sum tax free and 2/3's of his average salary over past 3 years and because he had a load of overtimeover past 3 years his pension is nearly 700 a week gross.He is only in late fifties so could be getting this pension into his 90s if he lived that long and if he dies before my mother she gets 1/3 of his final salary till death. Pension is worth well over a million and he probably only paid about 150k into the superannuation scheme.

I hope your father enjoys his retirement, and for a long time.

But I doubt what you say about his pension terms. It does not accord with the public service pension scheme, which pays 50% of final pay (excluding overtime) and is normally not payable until a person reaches 60.

ronbyrne2005

jimmmy wrote: »

Thank you for that. Would he even have paid 150k in to the superannuation scheme....bearing in mind how low wages etc were everywhere several decades ago ?

I estimated the 150k in 2009 money terms based on his contributions over past few years, could be a bit more but no more than say 250k, it was always a fixed % of his salary. If it had of been invested in a diversified fund in private sector it might be close to a million now anyway. These gold plated pension were invented when pay was low in public sector and people couldnt afford to spare cash from salary to invest for future. Also people rarely lived past 70 when the DB pension was invented.

dvpower

Brian Lenihan puts the cost of a public servants pension at 26.1% of pay. This is way over what taxpayers should be funding.

But it seems that the claim that a €100,000 lump sum is typical may be incorrect. .

Nearly one-in-three of all State employees, not including those working for local authorities, earn more than €50,000 a year, and 22,000 of them are paid more than €80,000 a year.

But this is pay for current employees. You would expect retirees to be closer to the top of their pay scale and further up the promotional ladder.

jimmmy

ronbyrne2005 wrote: »

I estimated the 150k in 2009 money terms based on his contributions over past few years, could be a bit more but no more than say 250k, it was always a fixed % of his salary.

I also wish your Dad well in his retirement.
However, you said your Dad was in his late fifties so how many years approx did he contribute for ? Lets say 35, although of course it could have been more or less. 150,000 divided by 35 means an average contribution of 4285 euro each year...even back say in the mid seventies .....??? so I wonder would he really have paid 150,000 in to his pension ?

ronbyrne2005 wrote: »

If it had of been invested in a diversified fund in private sector it might be close to a million now anyway. .

Doubt it....I know of someone ( private sector ) who invested a lump sum of 10,000 in a diversified Irish Life pension fund in 1984, a lot of money in 1984, when money was money, and its only work 19,000 euro now....hardly enough to buy a mid size car. Naw, most of the decent pensions now worth having are a public sector workers ones. Problem is, guess who pays.

erictheviking

ronbyrne2005 wrote: »

My father retired from council this year. He got nearly 100k lump sum tax free and 2/3's of his average salary over past 3 years and because he had a load of overtimeover past 3 years his pension is nearly 700 a week gross.He is only in late fifties so could be getting this pension into his 90s if he lived that long and if he dies before my mother she gets 1/3 of his final salary till death. Pension is worth well over a million and he probably only paid about 150k into the superannuation scheme.

Overtime isn't included in earnings taken into account for pension purposes. They will take pension levy from overtime though:rolleyes::rolleyes:
Why don't I believe that story?:rolleyes:

jimmmy

In fairness to ronbyrne, the story is quite plausable (eg his weekly pension of nearly 700 a week gross equates with his near 100k lump sum, if he had a salary of about 66 k just before retirement ...a not unreasonable expectation considering c.s.o. statistical average p.s. wage of 966 per week etc ). The possible flaw in the story, as I have already queried, is the posters estimation of 150k as the persons pension contribuion over their lifetime....I would say this is an over estimation, but I could be wrong. For a private person to buy such a pension ( inc lump sum ) I believe it would cost about 1 million , given the age ( late fifties ) of the recipient, life expectancy etc etc.