When will the government start taxing lump sum pension payments?

dfbemt · 08-09-2009 7:06pm

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 · 09-09-2009 9:24am

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 · 09-09-2009 9:49am

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 · 09-09-2009 9:57am

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 · 09-09-2009 10:05am

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 · 09-09-2009 11:59am

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 · 09-09-2009 12:24pm

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 · 09-09-2009 12:28pm

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 · 09-09-2009 12:33pm

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 · 09-09-2009 1:40pm

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 · 09-09-2009 1:44pm

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 · 09-09-2009 2:12pm

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 · 09-09-2009 2:30pm

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 · 09-09-2009 2:36pm

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 · 09-09-2009 2:46pm

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 · 09-09-2009 2:47pm

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 · 09-09-2009 2:52pm

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 · 09-09-2009 3:20pm

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 · 09-09-2009 4:23pm

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 · 09-09-2009 4:57pm

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.

erictheviking · 09-09-2009 5:30pm

jimmmy wrote: »

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 )..

I'm sorry but its not plausible at all. For a start overtime earnings do not count towards pension in any way. To get a gross pension of €700 a week he would have had to earn €1400 per week (72800/annum) for the previous 3 years at least which is highly unlikely for a council worker. (Unless he is one of the bosses)

jimmmy wrote: »

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.

If he is in his 50's why doesn't he have to wait until 65 for his pension? is it some type of redundancy/early retirement package he took?
Even so.. I don't know what would be left of his €700/week pension after tax but if a couple have to live on this its hardly a kings ransom.
Todays Pensioners worked for many many years for less than the average wage and the reason they did it is for the good pension benefits to be had when they retired. The fact that we can afford it is here nor there. Thats successive govt's faults for not making provisions for these payments. I think anyone who begrudges the pensioners now its time to collect are tightasses. On the other hand the PS pension scheme for recent employees is nowhere near as good as it was. New employees are now paying for there pensions....end of.
Mind you I don't expect a load of upper middle class students to agree with me:rolleyes:

jimmmy · 09-09-2009 5:38pm

erictheviking wrote: »

I'm sorry but its not plausible at all.

I disagree and I showed you the figures.

erictheviking wrote: »

For a start overtime earnings do not count towards pension in any way.

I know that but they do not affect the figures.

erictheviking wrote: »

To get a gross pension of €700 a week

Ah, but he said it was " nearly 700 a week gross.". It could be 660 or 680 for all you know.

erictheviking wrote: »

he would have had to earn €1400 per week (72800/annum) for the previous 3 years at least which is highly unlikely for a council worker. (Unless he is one of the bosses)

The poster said his Dad retired from the council...he did not say what type of " worker" he was or his career there. I know more than one or two council workers on more than 65 or 70 or 72 k.

ronbyrne2005 · 09-09-2009 5:53pm

This is true. I mixed up the overtime thing from my accountancy days where you use all earnings averaged over 3 years for tax free lump sum calculation.

He worked as a firefighter and paramedic with Dublin city council. worked since 1974 or something when the pension scheme was 2/3 of salary and 1/3 for spouse if retiree dies first.

parsi · 09-09-2009 6:18pm

jimmmy wrote: »

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.

I feel, I believe, I think, I assume - that doesn't make it so.

Figures I gave earlier suggested that in 2003 67% of workers were covered by defined benefit schemes. These guys/gals (incl senior management on salaries in excess of 234,000 p.a. ) would have nice lumpsums at the end as well.

Are you leaving them out of the equation because they don't suit your argument ?

jmayo · 09-09-2009 6:31pm

P. Breathnach wrote: »

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.

Ah that's alright then, it's nice to know that my taxes are going to help the offspring of those lucky enough to be public sector workers :rolleyes:
But I wonder who will contribute to my offspring now that the government are considering either means testing or rather taxing childrens allowance ?

P. Breathnach wrote: »

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.

Sounds like a bit of a windfall to me.
Any other private sector workers agree ?

Yeah but most of the contributions into the private sector pension fund was from the the person that was going to benefit and some from their employer, not all the taxpayers of the country.
And yes I know that pension contributions are tax deductable.

parsi wrote: »

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.

Yes and most of these are being targetted/closed down by the employers, because they can no longer afford them, unlike of course the state which borrows in order to afford them. :rolleyes:

BTW not all private sector workers work for large companies with defined benefit or for the good old banks.
Not all of us are michael fingerston.

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.

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

I am self employed, not working in consstruction so not ones of those you facetiously list above that benefitted out of the construction bubble, but why should I contribute for your guaranteed pension plus tax free lump sum, whilst my own pension lost 60% in the last year ?

Pelase tell me why I should be happy you will have a retirement lump sum (some of which is paid for my taxes) to invest, whilst I will probably have to take a part time job ?

It is the sense of entitlement eminating from a large chunk of public service employees that really gets up the goat of most private sector workers.

Someone here mentioned that it is paid because it is agreed (it is aprt of the pesnion agreement), much like the increments have to be paid because it is what has been agreed.

It is about time that a few people woke up to a shift boot in the ar** from reality. We no longer can afford a situation where one tranch of workers get huge benefits at the expense of another tranch of workers.

Zzippy · 09-09-2009 6:47pm

jimmmy wrote: »

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.

I would say that most people close to retirement have budgeted for this lump sum, without tax, and to tax it now would be unfair on people who have been led to believe that is what they will get. I know many colleagues who plan on investing most of their lump sum in an AVC to bump up their pension.
However, it will probably come down the line, and I think it should be phased in. For instance, I have 30 years to retirement, and that gives me a long time to budget for a reduced lump sum, but for people retiring in the next few years it should not be taxed, or taxed at a lower rate.

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.

Guesstimation. Back of envelope stuff. Hmmm.....

jimmmy wrote: »

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.

Oh, now its become fact?

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?

Got any figures to back that up???

jimmmy wrote: »

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.

Again quoting this figure as fact. without backing up your claim.

jimmmy wrote: »

I disagree and I showed you the figures.

No you didn't, you made mmore assumptions and did some calculations based on that. Making out that something is fact doesn't make it so.

Jimmy, I think its a valid thread, and you know what, its probably going to happen sooner or later anyway. But if you're going to debate something, do it on the basis of fact, and back up your claims with stats or figures from quoted sources, not "I did some calculations on the back of an envelope" or "I spoke to some people I know". Far too many assumptions and not enough proof.

Also, don't forget the fact that a large portion of the final pension is made up of the State pension, that PS workers pay the same PRSI towards as private sector workers, and that everyone gets (excluding the older civil servants who pay a lower PRSI rate, the rest of us pay the higher rate).

Finally, why make this a rant about public service lump sums? Why should private sector workers in defined benefit schemes not also be taxed on their lump sums?

jimmmy · 10-09-2009 10:47am

Zzippy wrote: »

I would say that most people close to retirement have budgeted for this lump sum, without tax, and to tax it now would be unfair on people who have been led to believe that is what they will get.

As P. Breathnach ( a retired public servant ) has explained , some in the public service use this windfall tax free cheque to pay towards their childrens ( + perhaps grandchildrens ? ) houses ....why would it be unfair to tax this cheque when many other peoples pensions ( for those lucky enough to have them - many do not ) have fallen by 60% ? Especially given the state of the countries finances / no other country in the world can be found to have such highly paid retired public servants ?

As regards the size of the tax free windfall cheque lump sum, P. Breathnach has confirmed it is 60/40 of annual salary at retirement. Given annual public service salary of approx 50,000 ( the c.s.o. will confirm average public sector pay is 966 per week ), and bearing in mind this is across all ages / grades etc of over 300,000 people, what do you think the average salary of those at retirement age is ? The CSO will not answer this question. ( they are probably on another sickie / stress day lol ). 60/40 of the retiring salary , or 1.5 times to you and me, is the tax free lump sum. Half the retiring salary is the pension after that.

P. Breathnach · 10-09-2009 11:53am

jimmmy wrote: »

As P. Breathnach ( a retired public servant ) has explained , some in the public service use this windfall tax free cheque to pay towards their childrens ( + perhaps grandchildrens ? ) houses ....why would it be unfair to tax this cheque when many other peoples pensions ( for those lucky enough to have them - many do not ) have fallen by 60% ? Especially given the state of the countries finances / no other country in the world can be found to have such highly paid retired public servants ?

You are being a bit selective, jimmmy. I also mentioned other uses to which people put the lump sum, including paying for nursing home care and providing security for declining years. My post was based on what I know from people who have retired, and I made it as a contribution to having a fair and well-informed discussion. That makes it particularly galling that you cite selectively.

And I also told you that it was not a windfall, because it is a part of the salary/retirement provision of public servants. Yes, it is a lump of money, and nice to get -- but it is not a windfall.

As regards the size of the tax free windfall cheque lump sum, P. Breathnach has confirmed it is 60/40 of annual salary at retirement.

I said more than that. Not everybody gets a full pension on retirement.

Given annual public service salary of approx 50,000 ( the c.s.o. will confirm average public sector pay is 966 per week ), and bearing in mind this is across all ages / grades etc of over 300,000 people, what do you think the average salary of those at retirement age is ? The CSO will not answer this question. ( they are probably on another sickie / stress day lol ). 60/40 of the retiring salary , or 1.5 times to you and me, is the tax free lump sum. Half the retiring salary is the pension after that.

Why the snide dig at the CSO and the people who work there? Did you, or anybody else, ever ask the question? Do they have an obligation to have that particular piece of information to hand?

jimmmy · 10-09-2009 12:09pm

jmayo wrote: »

Sounds like a bit of a windfall to me.
Any other private sector workers agree ?

Yes !

jimmmy · 10-09-2009 12:16pm

P. Breathnach wrote: »

I also mentioned other uses to which people put the lump sum, including paying for nursing home care and providing security for declining years.

But paying for houses for offspring was at the top of your list. The pension of half salary pays for security for declining years. I pointed out that most people retiring do not need to go in to nursing homes.

P. Breathnach wrote: »

I said more than that. Not everybody gets a full pension on retirement.

Every permanent public servant who does the required numbers of years service does, do they not ? The required number of years can vary eg for a Garda it is shorter, for a judge shorter still, is it not ?

P. Breathnach wrote: »

Why the snide dig at the CSO and the people who work there? Did you, or anybody else, ever ask the question?

Yes.

P. Breathnach wrote: »

Do they have an obligation to have that particular piece of information to hand?

It would be of great interest to the vast majority of the 1.8 million private sector workers ( who do not get a lump sum payment tax fee of close to 100,000 euro ) to know more about the 300,000 public servants who they pay taxes to and whom are entitled to such payment, tax free.

When will the government start taxing lump sum pension payments?

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