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When will the government start taxing lump sum pension payments?

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  • 07-09-2009 11:38am
    #1
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭


    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.


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    #2
    Sponge Bob
    Banned (with Prison Access) Posts: 25,234 ✭✭✭✭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


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    #3
    P. Breathnach
    Registered Users Posts: 12,089 ✭✭✭✭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.


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    #4
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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 ?


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    #5
    Diarmuid
    Registered Users Posts: 3,981 ✭✭✭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.


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    #6
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭jimmmy


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


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    #7
    Diarmuid
    Registered Users Posts: 3,981 ✭✭✭Diarmuid


    jimmmy wrote: »
    It would yield a lot of badly needed tax / money.
    Probably would only raise a pittance.


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    #8
    omahaid
    Closed Accounts Posts: 2,497 ✭✭✭omahaid


    Diarmuid wrote: »
    Probably would only raise a pittance.
    Hardly reason not to tax it though.


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    #9
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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.


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    #10
    ardmacha
    Registered Users Posts: 7,476 ✭✭✭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.


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    #11
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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.


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    #12
    P. Breathnach
    Registered Users Posts: 12,089 ✭✭✭✭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.


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    #13
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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 ?


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    #14
    ardmacha
    Registered Users Posts: 7,476 ✭✭✭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.


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    #15
    P. Breathnach
    Registered Users Posts: 12,089 ✭✭✭✭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.


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    #16
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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 ?


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    #17
    P. Breathnach
    Registered Users Posts: 12,089 ✭✭✭✭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.


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    #18
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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.


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    #19
    dvpower
    Closed Accounts Posts: 9,183 ✭✭✭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


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    #20
    parsi
    Site Banned Posts: 5,904 ✭✭✭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) ?


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    #21
    dvpower
    Closed Accounts Posts: 9,183 ✭✭✭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


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    #22
    P. Breathnach
    Registered Users Posts: 12,089 ✭✭✭✭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?


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    #23
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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


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    #24
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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 ....


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    #25
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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 .


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    #26
    parsi
    Site Banned Posts: 5,904 ✭✭✭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.


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    #27
    dvpower
    Closed Accounts Posts: 9,183 ✭✭✭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


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    #28
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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 ?


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    #29
    dvpower
    Closed Accounts Posts: 9,183 ✭✭✭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.


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    #30
    dvpower
    Closed Accounts Posts: 9,183 ✭✭✭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.


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    #31
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭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.


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