Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
Pensions
In a reply to a question on options facing an individual who was retiring at 59 with a comfortable pension, but one that allowed no adjustment for future inflation, and who was worried about their prospects, you wrote inter alia: "at 59 and with money to save, there would be a range of options, from deferring part of your payment, reinvesting some of your lump sum . . . or salt away in a new pension plan to be drawn down at a later stage".
From the above, it would appear that having triggered your pension you are free to begin a new one. Is this a correct reading and if so could you outline the rules that apply to the post-retirement pension? For example, what income is used to determine funding levels? Can a second tax-free lump sum be saved? I look forward to a full elaboration, as I have always understood that retirement was a one-off event.
Mr T.J., e-mail
The situation is one facing a growing number of people who retire early from arduous positions but still feel they have much to offer in the world of work. Such people are increasingly in demand by companies looking for experience and commitment in an age of labour shortages.
It is not necessary to stop working before receiving a pension. You can legitimately draw down an occupational pension while contributing to a personal pension, providing you are working at the time.
In other words, if you take up a job after starting to draw down a pension, you can use some of those work earnings to fund separate pension provision. In a case like that initially raised, where the individual is relatively young (59) and in good health, there is no reason why they cannot do so and use the new pension payments to offset the lack of a CPI escalator in their original pension.
This would be important, as inflation of say 3 per cent - well below the current rate - would eat away almost 20 per cent of one's pension in real terms in 10 years. At that stage the person in the original query would be 69 and in real trouble.
In terms of tax, there is not an issue. You are entitled to put money into a pension plan up to certain maximum limits and this money is payable into such plans free of tax. The tax is paid on the income when the accumulated pension benefits are drawn down as income later.
Homemakers' credits
I saw a reference to "homemakers' credits" in an article recently in Business This Week in the context of PRSI. Could you explain what "homemakers' credits" are?
Mr T.H., e-mail
Homemakers' credits are a recently introduced device to ensure that parents are not deprived of pension rights if they have to stay at home and mind children. The importance of the credits lies in the rules governing how State contributory pensions are calculated.
In assessing pension rights, the State looks at the number of PRSI contributions made by an individual from the time they first start employment until the day they retire. Within the PAYE system, one pays PRSI at source and receives credit for each contribution made.
In order to receive a full contributory pension - currently £96 (€121.89) a week before tax - you need to have a certain number of PRSI contributions to your name, both in total and in each year. This traditionally put people who stayed at home to look after children at a disadvantage. Under the homemaker's scheme, a homemaker is described as someone who gives up work to take care of a child under the age of 12 or an incapacitated child or adult.
Since April 1994, years out of the workforce for this purpose are not taken into account in calculating eligibility for the old-age contributory pension. Since its introduction, the scheme has also benefited those people who took such time off before 1994. Up to 20 years can be disregarded from the PRSI old-age contributory pension calculations in this manner for each adult.
To qualify, you need to be resident in the Republic, under 66, have been in insurable employment, live with and care for the child/incapacitated adult and not work full-time while caring for that child or incapacitated adult. However, you are allowed earn up to £30 gross a week. It's not a lot but it might make the difference for some people. One thing to bear in mind is that, in the first year of the scheme (April 6th, 1994, to April 5th, 1995), the child had to be under the age of six. Thereafter the age was raised to 12.
Years for the purposes of this scheme are tax years, not calendar years, although the two will shortly be interchangeable. If you start/finish a term as homemaker in the middle of a tax year, you will get weekly credits up to/from that date.
One point worth remembering is that the homemaker's credits count only in assessing eligibility for the old-age contributory pension, not other benefits under social insurance. People looking to avail of the provisions of the homemaker's scheme will need to register with the Homemaker's Section of the Department of Social, Community and Family Affairs unless they receive child benefit or carer's allowance from the Department.
Property
Are there Irish withholding taxes in place if I buy an investment property, condominium in nature, for example in Dublin? I am a non-resident of Ireland and would like to know the tax implications. My country of residence has a tax treaty with Ireland.
Dr J.F., e-mail
The simple answer is that the State does withhold tax on properties rented out in Ireland by landowners living abroad. The tenant, unless there is an agent taking care of your affairs, is obliged to deduct tax from the rent paid at the standard income tax rate - 22 per cent at present - and forward it to the Office of the Revenue Commissioners.
This withholding tax will be offset against the tax you are liable to pay on the rental income from the property at the end of the year, allowing for expenses.
The double taxation agreement that you refer to ensures that you will not be charged twice for the rental income accruing from the property but does not set aside the liability to withholding tax.
