As an advisor, how will the pensions levy affect your business?

Independent Financial Advisors provide advice on 70% of all contributions into private sector pensions in Ireland and, as professionals, are at the forefront of advising the Irish public to provide for income on retirement.

A poll conducted by Independent Trustee Company has revelaed that the vast majority of financial advisors believe that the pensions levy will negatively affect the amount contributed to private sector pension funds in one way or another over the next few years.

The question put to top Financial Advisors was “Following the new pension levy, how will this affect your clients’ future decisions to contribute to their pension fund?”

The results of the poll are highlighted below.

Pensions coverage in Ireland is still at an alarmingly low level with voluntary private pension coverage at 53% for people aged between 25-34 years. Adequacy of pensions savings is a major issue for people aged between 45-65 years. This is a long term issue that needs to be tackled and not exacerbated by a short-term need for cash. The government needs to support and incentivise people who are prepared to save for their later years. Tax relief on contributions is crucial to this and must be maintained and these benefits must also be highlighted to the Irish public.

Pensions, despite the levy, are still the most efficient way of saving for retirement.

Michael Keyes

Jobs Initiative announced - introduction of the Pension Levy

Last Tuesday (May 10^th) the government introduced the anticipated pensions levy as part of the Jobs Initiative. The government is imposing an annual levy of 0.6% on the value of the assets in private sector pension schemes. Approved Retirement Funds (ARFs) are excluded from this levy but are taxed in a different manner through the imputed distribution. Public Sector pensions are exempt.

The levy, which is to be backdated to January of this year, will be paid each year for four years and is expected to raise €470m a year, a total of €1.9 billion by the end of the 4 year period.

The levy has not been put into legislation as of yet but is expected in the coming days. We will keep you informed on any developments.

Deadline for Personal Fund Threshold applications fast approaching

The deadline for applications for Personal Fund Thresholds (PFT) is now only one month away. June 7^th is the latest date that Revenue will accept applications for a PFT and to date less than 150 enquiries have been made to Revenue. It is estimated that over 6,000 individuals could be affected.

With the deadline fast approaching the key is planning; firstly to obtain the correct Personal Fund Threshold for your clients and secondly, to plan in order to minimise the impact of the threshold.  The traditional advice around pension planning may have to be adjusted based on your clients’ circumstances.

If you have a query regarding PFT you can contact our PFT Helpdesk on (01) 603 5199 or email pft@independent-trustee.com for an initial free assessment on your clients’ potential exposure.

Chief Justice raises pension tax concerns with Kenny

In a meeting with Enda Kenny recently, the Chief Justice raised concerns about how the reduction in the standard fund threshold to €2.3m would affect judges’ pensions.

An article in the Irish Times yesterday, 27th April, alludes to the fact that there is a difference between the valuation methods used for public and private sector pensions.  What it doesn’t highlight, however, is the effect of these differing valuation methods.

For an individual in the public sector, the threshold equates to an annual income in retirement of €115,000.  For someone in the private sector with a defined contribution pension scheme, the same fund threshold equates to an annual income in retirement of €60,000.  It would be interesting to know how they justify this difference in treatment.

I also wonder whether the Chief Justice asked Enda Kenny about the plans in the Fine Gael manifesto to further reduce the standard fund threshold to €1.5m.

Jennie Faughnan

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