Beware...Pension deadline for high earners

Dominic Coyle of the Irish Times brought to our attention the registration deadline (June 7th)for Personal Fund Thresholds in his article Pension deadline for high earners.

This relates to the reduction in the pension fund cap since Budget 2011 from €5.4m to €2.3m (Standard Fund Threshold). Individuals with fund values or accrued pension entitlements valued in excess of €2.3m as at 7th December 2010 can seek a Personal Fund Threshold (PFT) from Revenue for the higher value.

Such individuals are required to register the details of their pension with Revenue by June 7th, otherwise Revenue will levy a tax on anything above the Standard Fund Threshold on retirement.

It is important that you contact our PFT Helpdesk on (01) 6035199 or email pft@independent-trustee.com as soon as possible in order to get an initial free assessment on your exposure.

The Irish Taxation Institute Annual Conference 2011

The Irish Taxation Institute Annual Conference 2011 was held in Galway last week. Independent Trustee Company were proud to support the conference for the tenth consecutive year and were well attended at the event.

A number of excellent presentations were made covering all areas of taxation from VAT to income tax to capital taxes. Not surprisingly, Pensions was, in itself, a detailed presentation and was also a hot topic of discussion among many delegates, given the recent changes in Finance Act 2011 and the implications it will have for advisors and their clients.

The main points from the pensions presentation were:

• Personal Fund Threshold (PFT) applications by 7th June 2011 – Irish Times article on Saturday confirmed that 144 applications have been made to date with Revenue
• Impact of longevity on pension planning – ’60 is the new 40’… Ireland’s population is aging rapidly
• Dividing pensions in family law cases – the impact of Pension Adjustment Orders on spouses ability to fund for pension
• Changes made to Approved Retirement Funds (ARFs) since Budget 2011 – availability of ARF to all members of DC arrangements and the new AMRF rules
• Potential restrictions on tax relief going forward – following on from the previous governments four year plan, there is still no confirmation from the new government if the tax relief on personal contributions will be restricted to standard rate by 2014.
  
  
  Many of these topics were covered in our recent On The Pulse Knowledge Forum in March, which is available on our website and will be further discussed at our next Knowledge Forum scheduled for May.
  
  
  There are still a number of points from the Finance Act 2011 that need clarification particularly around the new AMRF rules and the PFT. We have contacted Revenue on a number of these queries and hope to bring you further clarity on these matters and others at the next Knowledge Forum scheduled for May.
  
  
  If you have a query regarding your Personal Fund Threshold, Pension Adjustment Orders or if you would like to attend our next Knowledge Forum please call Simon Keegan on (01) 6611022 or email justask@independent-trustee.com.

Employing your spouse...what to keep in mind.

The idea of employing your spouse in your business can give rise to many advantages, but care needs to be taken in relation to how this is set up. There are many advantages to employing your spouse in your business; the greatest one is usually flexibility in terms of working hours! The fact that there is a direct personal and financial interest in the success of the business has a huge impact, although many businesses do not recognise the value of services provided by the ‘non-principal’ spouse, so the question of even a basic wage is never considered...Consider these questions to see whether this is something relevant to you:-

• Is your spouse assisting you in the business in an 'invisible' way – perhaps answering phones, taking orders, keeping the books, filing tax returns, doing payroll or indeed simply acting as a company director (more on that below)?
• Has a comprehensive list of what your spouse does ever been drawn up, or are diaries kept? Perhaps have them keep a diary for a month or so, which should give a good indication of the type of work they are doing, and how long it typically takes them to do it.
•  There is an intrinsic value in having someone available at times when you are not, does your spouse fill this description? When business contacts deal with your spouse, do they consider that they are still dealing with the business itself?
• If your spouse is a company director, this is a significant role of itself, as your spouse cannot delegate this responsibility to you. They are fully responsible for the activities of the company. No-one else would carry this responsibility for no pay, why should your spouse?

You may feel that your business cannot afford to pay your spouse – but perhaps wages or a salary could be accrued in your company accounts until times are better or more cash is available. This acknowledges the value brought by your spouse. No-one else would do this without payment! Some pointers for doing this:-

• Have a contract of employment drawn up for your spouse to include a full description of the role carried out by them
• Agree a structured payment and notify Revenue of the position. There are tax savings that can be generated by doing this, rather than having all allowances and credits claimed through one spouse.
• Do consider whether there are PAYE issues to be addressed. Bear in mind the impact of the USC which takes effect for anyone earning more than €77pw.
• In light of recent pension changes, consider whether it might be useful to have a separate pension structure for your spouse.

The bottom line here is that if you are going to do something, do it in a way that brings maximum benefits, taking care of all the details. Last thing anyone needs is a debate with Revenue over whether a spouse’s salary is justified!

If any of these issues are relevant to you and you would like more details please call (01) 6611022 or email justask@independent-trustee.com

Sonia McEntee

Are private pensions up for grabs?

Kathleen Barrington, of the Sunday Business Post Online, discusses the threat of the government raiding private pensions to fill the gaps in the Irish bank and government balance sheets.

The Constitution of Ireland protects property ownership, and citizens of the state are guaranteed that no laws will be passed to abolish property rights. Property rights can be limited by reference to the ‘common good’, so the question here is; what action could be justified in the ‘common good'?

The proposed levy on pension funds is already an attack on these rights as it is essentially a penalty on accumulated funds, rather than a tax on funds contributed afterwards. The rate of the levy, if it is introduced, will  be set at a level where a challenge would be unlikely. Remember the furore over the restriction of property-related tax incentives announced in the budget? If a levy raises the ire of the motivated, that in itself may be challenged before any consideration is given to ‘privitisation’.

Click here to view Kathleen Barrington's post.

Comments by Sonia McEntee

Grandfathering



Grandpa Simpson

Despite the various representations made by representative bodies it would appear that the Central Bank is committed to its plan to kill off all grandfathers in Financial Services.

It remains committed to this final solution despite the fact that it has acknowledged the following:

1.       There will be no improvement in the service received by clients

2.       There will be a €5m cost to the Broking profession which will be an additional cost to clients

An approach of this nature is not only contrary to the Principles of Good Governance  as enunciated by the Irish Government (it breaches the principles of Necessity, Effectiveness and Proportionality), it is also potentially in breach of  EU law.

Why?

Because the only industry professionals who will not have their experience recognised by the Central Bank are those that have developed that experience in Ireland. Experience gleaned in all other EU states will be recognised as those individuals will be eligible to provide services here based on the requirements of other EU states.

The concept of mutual recognition of qualifications is developed law in the EU.

In all such cases, where an individual falls short of the relevant educational standard, the host state is required to take into account the experience the person has gained within the EU. In the Bobadillo case the ECJ held that where a qualification wasn’t recognised it was necessary to look to the Professional Experience of the person to see if it was equivalent.

The Irish Brokers Association has proposed working with the Central Bank to develop a system which would recognise professional experience – in compliance with the basic principles of EU law.

To date this approach has not been accepted.

If we are to learn anything from the current financial crisis it must surely be not to have to rely on the EU to tell us how to run our own country.

I have no doubt we will come through the current financial crisis stronger than ever. And in years to come our civil servants will be travelling the world to see their services as to how this major economic problem was overcome.

The key asset they will be selling will be their experience.

What price can you put on that.

Aidan McLoughlin

Investment in Ireland

When you consider the level of investment needed in Ireland to:
1. Pay for the banking crisis

2. Fund the government deficit

     3. Provide finance to long suffering businesses


You would think every aspect of our investment regime would be structured to maximise the flow of funds. In fact, the exact opposite is happening!

Irish pension funds are sitting on €80 billion in assets. A reducing amount of this is invested in Ireland.

Concerns about the level of equities in Pension Funds means they are selling equities. The volatility of Irish government debt means they cannot invest in this either. SME investment is handicapped by a range of Revenue rules dealing with close companies.

Even the annuity market cannot claim to be immune: whilst the yield on Irish Gilts rocket upwards annuity rates remain depressed because of the need to back them with German Bonds.

To borrow loosely from Coleridge: “Money Money everywhere and Everyone Going Broke”.


Author: Aidan McLoughlin


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Disclaimer: 

• The opinions expressed are those of the individuals rather than Independent Trustee Company.
• Independent Trustee Company does not take responsibility for the accuracy of any content.
• The contents cannot be construed as advice.
• We would strongly suggest that any information provided should be discussed with your financial adviser before any action is taken.

The Bigger Picture

Introducing the Green Paper on pensions back in 2007, the then Minister for Social & Family Affairs had this to say:

“We are living longer, and in better health….However, while Ireland currently has a younger population than most European countries, over the longer term the impact of population ageing in this country will be considerable. According to new data in this Green Paper, the number of people of working age for each person over age 65 will fall from 6 in 2006 to 2 in 2050. Taking account of the fact a proportion of those of working age will not be in employment, the ratio of workers to people aged 66 and over in 2050 will be 1.5 to 1…”

1.5 workers for every individual entitled to a social welfare benefit….astonishing statistic, isn’t it? Here are a few more:

·    The population aged 65 and over will increase by 59% by 2021 and by a further 142% by 2061.

·    Since 1998, the proportion of pensioners receiving a state pension has increased from 61% to 71% in 2000 and is projected to increase to 98% by 2056.

·    Adequacy is primarily a private sector issue: most public service pension schemes will provide benefits after long service which, when added to any social welfare pension entitlement, will provide a retirement income at least equal to 50% of pre-retirement income.

·    Current costs of providing state pensions stands at 3.2% of GNP - this figure is projected to grow to 10.1% in 2060.

These statistics are just some of the factors contributing to an enormous headache for the State and are the reasons behind the publication of 4 major papers on pensions, culminating in the National Pensions Framework in 2010. However, the current difficult times have caused our great public servants to ignore the ticking time bomb outlined above, and they have proceeded to roll back incentives that were introduced to increase private pension coverage. The threat of an annual levy on pension funds together with a further reduction of benefits represents the subjugation of tomorrow’s concerns in order to pay for today’s.

This has happened once before in our history. In a time of great calamity our ancestors ate the seed potatoes and were left bereft shortly thereafter. We should avoid doing the same. Otherwise the only thing we will have learned from history is that we have not learned from history.

Paul Gilmer