fund managers challenge - how to avoid the levy

Tora Bora

Will the financial engineers, now start to seek to find a way to put private pension funds beyond the reach of the new levy.
I saw recently that Michael Ronan, has personally invested in German government bunds. No doubt, he was carefull not to put a levy on those savings.

Must call the trustees of my fund tomorrow, to find out how what they intend to do, to put my fund where it cannot be pillage by the government.

All ideas welcome.

hmmm

The tax relief for higher rate taxpayers probably means a pension still makes sense. When the government reduces the tax rate further, it's time to find an alternative. There is no sense in paying tax putting money into a pension, paying tax on the pension amount and then paying tax when you draw down the pension.

Raskolnikov

Tora Bora wrote: »

Will the financial engineers, now start to seek to find a way to put private pension funds beyond the reach of the new levy.
I saw recently that Michael Ronan, has personally invested in German government bunds. No doubt, he was carefull not to put a levy on those savings.

Must call the trustees of my fund tomorrow, to find out how what they intend to do, to put my fund where it cannot be pillage by the government.

All ideas welcome.

Tora, your statement confuses me. The only way to avoid paying this levy is to declare your self a non-resident. Also for the record, private pensions cannot be moved abroad, so that nixes any notions of illegal tax evasion.

Tora Bora

Raskolnikov wrote: »

Tora, your statement confuses me. The only way to avoid paying this levy is to declare your self a non-resident. Also for the record, private pensions cannot be moved abroad, so that nixes any notions of illegal tax evasion.

I was not suggesting anything illegal. Just that we pay our fund managers to manage our funds to maximize gain. Now if they can figure out a way to legally avoid this levy, I would expect them to do so.

beeftotheheels

Once we have the draft legislation then no doubt some will start thinking about loopholes.

However, if it is drafted broadly enough then the only obvious way to avoid the levy would be to move the fund offshore.

If you are older and you have a lot of debentures in your fund then you could always argue that applying a wealth tax to debentures contravenes the capital duties directive, and by the time the case goes to the Court of Justice and back again we may actually be in a position to refund you the tax.

Of course if you lose it will have been an expensive exercise in trying to avoid a small tax.

beeftotheheels

Tora Bora wrote: »

I was not suggesting anything illegal. Just that we pay our fund managers to manage our funds to maximize gain. Now if they can figure out a way to legally avoid this levy, I would expect them to do so.

You need to caveat this. If they can find a way to legally avoid the levy and it is cost effective for them to do so, then you have a right to expect that of your fund managers.

Moving the whole fund offshore is possible, but would be a bit of a nightmare, and would subject the fund to the rules of the jurisdiction it moved to. This could be a good thing or a bad, but there are risks that need to be weighed up against the saving of the tax.

Trhiggy83

When does this levy come into force (July ?)

Should they not be promoting private pensions instead of taxing them.

beeftotheheels

Trhiggy83 wrote: »

When does this levy come into force (July ?)

Should they not be promoting private pensions instead of taxing them.

Pension funds = piggy banks for the future so they are a good thing. But we're broke. So we're raiding the piggy banks.

What you've said is conventional wisdom, but it has to be altered to reflect where we are at the moment.

If you had a nice full piggy bank and no cash to put petrol in the car to get to work would you raid the piggy bank? I think you would and rationalize it on the basis that if you keep your job you can always put the money back in the piggy bank in the future.

Do I expect the government to put the money back? No.

But do I like knowing that if my private pension ends up worthless I will be living in a solvent state which will look after me? Yes.

If the economy contracts more, my pension fund probably shrinks by more than the tax. If the economy grows and we get out of this mess, my pension fund grows too.

If you think about it you can rationalize it, but only given the crisis we are currently in.

hmmm

beeftotheheels wrote: »

If the economy contracts more, my pension fund probably shrinks by more than the tax. If the economy grows and we get out of this mess, my pension fund grows too.

I don't want to sound smart, but some of us have very little of our pensions invested in the Irish economy. If the incompetent Irish electorate vote idiots who promised them unlimited wealth selling houses into power, it was a nice feeling (for a while) to think that you had insulated yourself from the idiocy by investing in global funds.

sollar

0.6% is not much, try 10 times that

Tora Bora

It's supposed to be a temporary levy.
Wouldn't be surprised if in a crap or bust scenario, the government decided to nationalize the whole private pension fund by way of a 100% levy.

With SF in the next government, it would be a really appealing scenario for them.

sollar

sollar wrote: »

0.6% is not much, try 10 times that

its 0.6% EVERY YEAR :eek::mad::mad::mad:
Try 30 times that over the life of a pension

Inquitus

Can this not be challenged in the courts?

To my mind, it's no diff than taking a % of the money in our current or savings accounts.

Nody

Tora Bora wrote: »

It's supposed to be a temporary levy.
Wouldn't be surprised if in a crap or bust scenario, the government decided to nationalize the whole private pension fund by way of a 100% levy.

With SF in the next government, it would be a really appealing scenario for them.

Yea, it is amazing how many "temporary" taxes/fees tend to become permanent...

beeftotheheels

Inquitus wrote: »

Can this not be challenged in the courts?

To my mind, it's no diff than taking a % of the money in our current or savings accounts.

On what basis?

It is just a tax, a wealth tax which is something new for Ireland, but a tax just the same.

Would you rather they increased the basic rate of income tax (which would reduce spending so the increase would need to be greater to pay for itself)?

beeftotheheels

hmmm wrote: »

I don't want to sound smart, but some of us have very little of our pensions invested in the Irish economy. If the incompetent Irish electorate vote idiots who promised them unlimited wealth selling houses into power, it was a nice feeling (for a while) to think that you had insulated yourself from the idiocy by investing in global funds.

Actually, having spent a bit of time on google it seems that my damning indictment of Irish fund managers was over egged and that they are not as over exposed to our economy as I had assumed.

http://www.sbpost.ie/themarket/what-currency-moves-mean-for-your-pension-52394.html

So back to the analysis that it is just a tax then!

Inquitus

beeftotheheels wrote: »

On what basis?

It is just a tax, a wealth tax which is something new for Ireland, but a tax just the same.

Would you rather they increased the basic rate of income tax (which would reduce spending so the increase would need to be greater to pay for itself)?

I take issue with a Tax being retrospective as this is. They have decided to tax savings I have already made, much the same as if they decided to tax the balance of my bank accounts.

I have no issue with them reducing the tax breaks on pension contributions etc. on a go forward basis, or indeed raising tax across the board on a go forward basis. This is akin to saying we have decided we didn't tax PAYE workers enough over the last 5 years, so we are gonna take 0.6% of everything your earned in that period now, it's a retrospective money grab, and they can only get away with it as most of us won't feel the pinch of it for many years to come....

beeftotheheels

Inquitus wrote: »

I take issue with a Tax being retrospective as this is. They have decided to tax savings I have already made, much the same as if they decided to tax the balance of my bank accounts.

I have no issue with them reducing the tax breaks on pension contributions etc. on a go forward basis, or indeed raising tax across the board on a go forward basis. This is akin to saying we have decided we didn't tax PAYE workers enough over the last 5 years, so we are gonna take 0.6% of everything your earned in that period now, it's a retrospective money grab, and they can only get away with it as most of us won't feel the pinch of it for many years to come....

This is how wealth taxes work. We're not familiar with them, other jurisdictions are. If they brought in a wealth tax on houses worth over €300k then that penalizes the person who worked and saved up a decent deposit and took out an affordable mortgage, and had a nice home.

On second thoughts, I can see why they went for the pension funds...

Tora Bora

Why not a special tax on those who made windfall profits in the bubble years. Extra tax to be levied on those who made the windfall by selling over inflated property to the state, a.k.a. the tax payer.
Let's start with Mrs gilmo, wife of our esteemed tainiste.

IrishQFA

Trhiggy83 wrote: »

When does this levy come into force (July ?)

Should they not be promoting private pensions instead of taxing them.

The levy takes effect from 1st January 2011.

IrishQFA

Tora Bora wrote: »

Will the financial engineers, now start to seek to find a way to put private pension funds beyond the reach of the new levy.
I saw recently that Michael Ronan, has personally invested in German government bunds. No doubt, he was carefull not to put a levy on those savings.

Must call the trustees of my fund tomorrow, to find out how what they intend to do, to put my fund where it cannot be pillage by the government.

All ideas welcome.

If Mr Ronan invested, via his pension, in German Bonds then his pension will be through an Irish based pension provider and as such will not be exempt from this levy. Most providers have numerous funds that invest outside of Ireland but this is irrelevant to the levy I'm afraid.
One possible loophole - which I need to check out and report back on - is the status of the Standard PRSA. The charging structure of this type of pension is enshrined in the Pensions Act and are limited to a maximum charge of a contribution charge of 5% on each contribution and a fund based charge of 1% p.a. If this levy is applied to the Standard PRSA then the fund based charge becomes 1.6%. thereby contravening the rules under the Act. This may therefore require a legislative change for PRSA's.(For more info keep an eye on twitter - IrishQFA)

IrishQFA

beeftotheheels wrote: »

Actually, having spent a bit of time on google it seems that my damning indictment of Irish fund managers was over egged and that they are not as over exposed to our economy as I had assumed.

http://www.sbpost.ie/themarket/what-currency-moves-mean-for-your-pension-52394.html

So back to the analysis that it is just a tax then!

You are quite correct - since the intro of the Euro, Irish fund managers have gradually switched their emphasis away from Ireland and treat Ireland as just another country in most cases. Yep, it is just another tax but I'm not sure yet if it can be applied to Standard PRSA's as there are maximum fund based charges that apply here and adding another 0.6% p.a. will exceed this limit. This is enshrined in the Pensions Act so I'd expect that a change in the legislation at the very least will be required. ( I will update through twitter when I get a definitive answer. see irishqfa on twitter)

IrishQFA

Tora Bora wrote: »

Why not a special tax on those who made windfall profits in the bubble years. Extra tax to be levied on those who made the windfall by selling over inflated property to the state, a.k.a. the tax payer.
Let's start with Mrs gilmo, wife of our esteemed tainiste.

Too much like hard work I'd say!! Typical solution to our problems - go for a nice soft target! Watch this space re Standard PRSA's though - will update via IrishQFA on Twitter.....

Trhiggy83

IrishQFA wrote: »

If Mr Ronan invested, via his pension, in German Bonds then his pension will be through an Irish based pension provider and as such will not be exempt from this levy. Most providers have numerous funds that invest outside of Ireland but this is irrelevant to the levy I'm afraid.
One possible loophole - which I need to check out and report back on - is the status of the Standard PRSA. The charging structure of this type of pension is enshrined in the Pensions Act and are limited to a maximum charge of a contribution charge of 5% on each contribution and a fund based charge of 1% p.a. If this levy is applied to the Standard PRSA then the fund based charge becomes 1.6%. thereby contravening the rules under the Act. This may therefore require a legislative change for PRSA's.(For more info keep an eye on twitter - IrishQFA)

Thats an interesting point you make, i forget exactly what the limits are but you are right in the sense that they are clearly defined and there is a maximum limit to the charges that can be applied to a PRSA.

Does anyone know how the 0.6% is going to be deducted. Is it yearly or is it on the entire value of your pension or does it just apply to new contributions?

a bit confused

Trhiggy83

Inquitus wrote: »

I take issue with a Tax being retrospective as this is. They have decided to tax savings I have already made, much the same as if they decided to tax the balance of my bank accounts.

I have no issue with them reducing the tax breaks on pension contributions etc. on a go forward basis, or indeed raising tax across the board on a go forward basis. This is akin to saying we have decided we didn't tax PAYE workers enough over the last 5 years, so we are gonna take 0.6% of everything your earned in that period now, it's a retrospective money grab, and they can only get away with it as most of us won't feel the pinch of it for many years to come....

Surely you cannot be taxed on the entire amount, only future contributions i would be happy with. Taking money from me that i have already invested is not on and doesnt even sound legal

IrishQFA

hmmm wrote: »

The tax relief for higher rate taxpayers probably means a pension still makes sense. When the government reduces the tax rate further, it's time to find an alternative. There is no sense in paying tax putting money into a pension, paying tax on the pension amount and then paying tax when you draw down the pension.

In their Program for Government FG promised not to touch the tax relief on contributions but instead to take say, a 1% levy, each year on funds. What we do not yet know is whether they will still go ahead with this in the next budget and therefore there may be then a 1.6% levy or is this new levy of 0.6% intead of that and will they do a u-turn on their promise not to reduce tax relief too?! I will be looking into this further in the next few days and will update via twitter (IrishQFA)

Raskolnikov

sollar wrote: »

0.6% is not much, try 10 times that

You put contributions into your pension with the intention that they compound over time. The €500 you lose today is actually more like a €4,000 loss by the time you come to draw down on your pension.

hmmm

IrishQFA wrote: »

In their Program for Government FG promised not to touch the tax relief on contributions but instead to take say, a 1% levy, each year on funds. What we do not yet know is whether they will still go ahead with this in the next budget and therefore there may be then a 1.6% levy or is this new levy of 0.6% intead of that and will they do a u-turn on their promise not to reduce tax relief too?! I will be looking into this further in the next few days and will update via twitter (IrishQFA)

The FF program agreed with the IMF looked for a tax increase by dropping higher rate pension relief. The FG program for government said that instead of lowering the tax relief, FG would impose a levy and the IMF agreed that the plan could be changed, as long as the overall figures remained the same.

However, this jobs rigmarole was not budgeted in the IMF plan. This is extra spending which is being financed using the pension levy. Unless FG have another source of income to replace the proposed FF/IMF removal of higher rate tax relief on pensions, I fear that pensions will be hit again in the upcoming budget.

hmmm

Trhiggy83 wrote: »

Surely you cannot be taxed on the entire amount, only future contributions i would be happy with. Taking money from me that i have already invested is not on and doesnt even sound legal

It is a tax on the entire amount. That's why it is retrospective taxation.

Head The Wall

sollar wrote: »

0.6% is not much, try 10 times that

The difference with this levy is that it is put on a pension that has been fully funded, PS don't fund their own pensions and just because you now pay 6% more than you used to it's still not enough and the taxpayer ends up funding the rest. This is in no way comparable to the PS pension levy.

Personally I think the Govt thinks that people will accept this levy as equitable because the PS pay a pension levy and now there's a levy for private sector pensions. They are completely different beasts though and maybe there are enough thickos in the country that will fall for this travesty

Raskolnikov

hmmm wrote: »

Unless FG have another source of income to replace the proposed FF/IMF removal of higher rate tax relief on pensions, I fear that pensions will be hit again in the upcoming budget.

I think they'll just scrape higher rate relief.

"Twas Dem IMF dat dun it!" they will tell us.

hmmm

Raskolnikov wrote: »

I think they'll just scrape higher rate relief.

"Twas Dem IMF dat dun it!" they will tell us.

Possibly. And then people will pay tax on money they put into a pension, a levy on funds inside the pension, a levy on the funds they put into an ARF or annuity and tax when they take funds out of the ARF or annuity. It will kill pensions unfortunately, the only people with pensions will be the politicians and the public service - the rest of us can live on the scraps thrown from their table.