The deadline for applications for the post of Deputy Garda Commissioner has been extended. The job comes with a basic salary of almost €200,000 per year, €30,000 more than assistant commissioners get, but almost nobody from within the force will apply – due to a fear that landing the post will have a negative impact on their pension.
How can that be?
In 2005, the government introduced measures intended to prevent people taking advantage of the tax breaks related to pensions. Basically, if you built up a pot of more than €5 million, the State took a hefty chunk.
Since 2014, that ceiling, known as the Standard Fund Threshold (SFT), has been €2 million.
The Department of Finance’s assumption at the time was that people would simply stop putting money into their pot as they approached the limit – but that’s not an option for public servants who, as independent pensions consultant Tony Gilhawley pointed out recently in the Irish Tax Review, often don’t even know how much is in their pot and have no real control over how it accrues.
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So it’s primarily an issue for the best paid public servants?
Yes, it is certainly an issue for them with Gilhawley suggesting a consultant earning almost €300,000 a year on the new public-only contract with full service would lose a quarter of their pension for the first 20 years because of the limits.
The Association of Higher Civil and Public Servants recently said hundreds of its members will be impacted as things stand while judges and those in other specialist roles also stand to be hit.
Public servants, though, are actually more favourably treated when it comes to dealing with the issue upon retirement.
Who else is impacted?
The SFT is also a big consideration for high earners in the private sector too with Ibec recently describing the current ceiling as “a barrier to business growth” and the Irish Tax Institute describing the current landscape as “penal in nature”.
KPMG has suggested funds above the threshold would be taxed at an effective income tax rate of up to 68.8 per cent.
What about everybody else?
People who don’t earn quite so much, which is most of us, have rather different concerns. Fewer than half of workers have a pension related to it at all and the average pot is often estimated to be a little more than €100,000.
The planned introduction of auto-enrolment, whenever it finally happens, will improve the number of people with something more than the State pension to look forward to but EFT is unlikely to be an issue for many.
Is the situation set to change?
Yes. It has been argued by various representative groups that the threshold should be increased to somewhere between €2.5 million-€3.5 million. A report by the Commission on Taxation and Welfare recommended periodic benchmarking and the results of a recent independent review have been sent to Minister for Finance Jack Chambers who is said to be considering its recommendations in the context of the wider budget. Addressing the issue of filling senior positions in the public service is likely to be a significant consideration.
The auto-enrolment pension scheme seems good on paper, but how will it actually work?
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