Why the new EII may not be the job creation initiative it appears to be........

Sonia McEntee comments on the introduction of the Employment and Investment Initiative (EII) in the Sunday Business Post

PRSAs and USCs – How not to do it!

The PRSA was introduced to increase private pension coverage - it’s a consumer-friendly product, very transparent, mobile and above all flexible.

Both an employer and employee can contribute to a PRSA and from an employer perspective there is no need to create a group pension fund. Employers, particularly multinationals, had started to favour PRSA’s as a part of an overall remuneration package.

In the context of pension schemes, employer contributions to PRSAs are taxable on the employee as a benefit-in-kind. However, the employee could claim tax-relief up to the normal age-related pension limits, so in general there was no tax liability arising.

With the passing of the 2011 Finance Act, which saw PRSI extended to certain types of pension contributions, and the introduction of the Universal Social Charge (USC), the unfortunate employee, with a PRSA as his company pension vehicle, gets hit with a double whammy - the employer and the employee contributions are subject to both PRSI and USC.

As employer contributions are treated as if they were made by the employee and effectively added to the pay of the employee, employer contributions to a PRSA now attract a USC liability ranging from 2% of the first €10,036 up to 7% on sums over €16,016 plus PRSI of 4% (on amounts over €127 per week).That’s an 11% hit on pension contributions for virtually all employees on monies they will not be receiving until they retire.

Meanwhile employer contributions to a self administered pension scheme are, quite rightly, not subject to either the USC or PRSI.   

The impact of a potential 11% hit on PRSA contributions by an employer was probably unintentional.  However it will very quickly kill that market.

An example of how not to do it – we live in hope that the new government will realise the damage that is being caused and reverse the Finance Act changes.  

Paul Gilmer

Three Strikes - Are We Out. Follow up Interview

If you have trouble viewing this video through the blog, please click here

Finance Bill protects TDs

An Independent Trustee Company study has recently brought to light the huge costs of ministers’ pensions to the taxpayer but as if to add salt to the wounds this has been vindicated by a provision in the Finance Bill, which protects these generous ministers’ pensions.

An article in the Irish Sunday Times highlights a starring contradiction in the Finance Bill to the Budget.

Click here to view the article that appeared in this Business section of this week’s Irish Sunday Times.

Three strikes - are we out?

The Budget announced new provisions to withdraw property-related tax incentives. Before being introduced, an assessment will be carried out to look at the impact. The question is will it take into account the impact on NAMA bound properties as well as the full extent of unsold tax-incentive properties across the country.  

There really is so much more at stake here than a populist withdrawal of tax-relief from individuals. High-earners already had the annual benefits of these reliefs curtailed dramatically. If the changes are enacted, we will see many of the 'elite' property owning class find themselves in a situation where they simply cannot re-pay mortgages. 

Now, many landlords are facing further rent reductions, further hikes in interest rates and most likely reduced earnings as well. You would imagine that the only other thing that could possibly go wrong is for the tax relief to be withdrawn. But there's more. If the ability to pass on the tax relief to a new purchaser within the original tax-life of the property is also withdrawn, this will have a further significantly detrimental effect.

Who else will suffer?

Oh yes, the Exchequer, i.e. We the taxpayers. While the value of the reliefs may be saved (and this is a declining value every year as reliefs are exhausted), there will be:

• reduced stamp duty payments,
• reduced flow of VAT from sales of new properties,
• no corporation tax, and
• no capital gain tax as everyone in the supply chain loses money.

Hopefully the assessment will take full account of these figures too.

Secondly, we'll suffer even further as many of these properties find their way into NAMA, never to recover even close to what they cost.

And thirdly, we'll suffer even further, as the banks that we own, take massive further losses on small landlords. Even Joan Burton, one of few politicians fully on top of their brief at all times, fails to see that many of her own constituent class took this route as well.

So three strikes - can we recover from that? There are currently over 300,000 vacant housing units in the country. Is there any glimmer of hope at all?? Remember the closing of the stamp duty loophole for developers? Back in 2007? The one that was, well, never actually closed....................

Sonia McEntee

Canvassing Irish Government on Pensions Issues

Pension Adjustment Orders

The new standard threshold for pension funds introduced by Budget 2011 has caused some consternation among pension holders, particularly those who are near or above the €2.3 million cap and have not yet planned to retire. Apart from those concerns, the new threshold also brings into focus some of the rules for a pension scheme where a pension adjustment order (PAO) is in place.

A case I am currently dealing with involves a client (43), with a pension of €1.8 million, who is currently going through a divorce and where the court has indicated that 50% of the client’s pension benefits are to be awarded to the client’s estranged spouse. You would think that the client would then be allowed to fund for an additional €1.4 million to take the client’s fund up to the €2.3 million cap. But you would be wrong. Revenue’s view is that, for the purposes of the client’s funding, the estranged spouse’s interest must be taken into account. On the flipside, when calculating the estranged spouse’s funding levels, you ignore the benefits under the PAO. So the client will only be able to retire with a maximum pension fund of €1.4 million and the estranged spouse can legitimately retire with a maximum fund of €3.2 million.



This situation reminds me of a famous quote- “The difference between genius and stupidity is that genius has its limits”

Paul Gilmer