SENIOR MEMBERS of the judiciary are very concerned about the way in which their pension concerns have been presented. They have authorised one of their members to explain the grave financial implications for retiring judges and their families.
Speaking on behalf of the judiciary, the nominated judge outlined these concerns to The Irish Timesyesterday.
The senior judge pointed out that a High Court judge, with a relatively modest pension from private practice before he became a judge, could face a lump sum tax bill of over €400,000 the day he or she retires.
The problems with pensions and tax liability were believed to be one of the issues discussed recently when Taoiseach Enda Kenny paid a visit to the Four Courts and had talks with Chief Justice John Murray during what was described as a courtesy call. Both the Taoiseach and Chief Justice declined to confirm the subject of their talks.
However, the senior judge stressed that the judiciary was not seeking any exemption or special treatment, as had been suggested.
Dismissing suggestions of special pleading, he said the anomaly they were concerned about placed higher-paid public servants, including the judiciary, at a serious disadvantage compared to similarly paid people in the private sector.
The reduction of the ceiling for tax liability on a pension fund to €2.3 million in the last Finance Act means a High Court judge with an additional private pension fund of €500,000 (worth about €25,000 a year) will face the €400,000 or more bill on retirement.
This could also affect senior public servants who have built up an additional pension fund through additional voluntary contributions (AVCs).
Circuit and District Court judges, who earn just under €178,000 and €148,000 respectively, will not be affected unless they have substantial private pension funds.
However, a Circuit Court judge with a private pension fund of anything over €250,000, and a District Court judge with a fund of over €600,000, would be affected to an extent. Because public service pensions are paid from current expenditure, there is no actual pension fund and it is worked out notionally.
Public servants’ pension funds are calculated, for the purpose of this tax, by multiplying the pension payable on retirement by 20 and adding the lump sum, which is 1½ years’ salary. This amounts to 23 times the pension.
A High Court judge will have a pension of about €125,000, plus a lump sum of about €375,000, producing a notional pension fund of about €2.8 million. Thus there is a tax liability on €500,000, which would amount to €205,000. However, if the judge had also contributed to a private pension worth €500,000, the tax liability would be €410,000.
If the fund is larger, so will be the tax liability. This is payable even if the private pension has already been drawn down, which would involve already paying tax on 75 per cent of its value.
The senior judge, speaking on behalf of the judiciary, pointed out that where a person working in the private sector has a private pension the pension fund can pay the tax and the beneficiary then has a correspondingly reduced pension.
But because there is no real fund for public servants, the tax is due immediately on retirement, rather than being paid through a reduced pension.
The judiciary would prefer if the option existed to pay the tax due over the duration of the pension.
He also said the multiplier used to calculate the fund bears particularly heavily on judges, who retire at 70. They will be taxed in the same way as those senior executives in private business, or in the public service, who might retire at 60 and who would therefore enjoy 10 years’ more pension.
The multiplier should reflect the actuarial value of the pension which, given that the life expectancy of a male at 70 is 12 years, is about nine or 10 times the value of the pension, he said.