Public Service Pension Levy - some sense prevails

I blogged last week here about the possibility that the levy could cause some people to reduce their pension contributions. Thankfully, my fears in this regard have turned out to be unfounded.

The following is the latest information available about the levy, with thanks to Eagle Star / Zurich: -

We (Eagle Star / Zurich) have been asked a number of questions in relation to the levy and its impact on pension contributions. We contacted the Revenue and have just received the following answers:

Q1. Are these levies regarded as pension contributions or as a separate levy / taxation?

A. The levy will be regarded as pension contributions.

Q2. Do the levies form part of an employee's age related contribution limits?

A. No, they do not form part of the employee's age related contribution limits.

Q3. Will the levies be applied to an employee's gross salary or net salary after the deduction of any employee / AVC contributions?

A. They will be deducted from the employee's gross salary, net pay arrangement to be operated.

Q4. Do the levies qualify for tax relief & what happens to anyone earning over the 2009 earnings cap of €150K?

A. Yes, tax relief is available, see 3 above. No restriction with reference to €150K earnings cap.

Q5. Is this proposal contingent on Union agreement & what timeframe are we looking at?

A. This proposal comes into effect on 1st March 2009.

Eagle Star Zurich - a good news story

In the current climate, I'm almost relieved to read some good news stories from time to time. Eagle Star / Zurich's new business in 2008 was actually up by 1% on 2007, despite the difficult year. This was largely driven by pension & PRSA sales which pulled the overall average up - other areas like Mortgage Protection life assurance were understandably down.

Credit where it's due - we've enjoyed a good working relationship with Eagle Star for many years and I'd suggest that their trend-bucking performance is largely attributable to consistently above-average fund performance, excellent online platform and a strong PRSA contract.

With hindsight, they have done themselves favours by steering clear of exotic and over-complex investments (e.g. ISTC) in favour of good old-fashioned stock picking.

More details can be read here.

Public Service pension levy

I've been following the reporting of the Public Service Pension Levy announced this week.

I can't see any clear explanation as to whether this new levy will be included in your usual limits for tax relief on pension contributions (e.g. 20% of income while in your 30s, 25% of income while in your 40s etc.) As the levy qualifies for tax relief, it seems reasonable to assume that it will be included as a pension contribution for the calculation of these limits.

If it is, a rather bizarre situation may arise where an individual has been voluntarily making additional pension contributions - Additional Voluntary Contributions (AVCs) and/or Notional Service Purchase (NSP - "buying back years"). The additional levy could put them over the limit for tax relief for their age. So the logical thing to do would be to reduce their voluntary pension contributions.

Given that the Government has spent an awful lot of time, effort & money trying to encourage people to contribute to their own pension, it seems counter-productive to then introduce a levy which may have the effect of encouraging people to reduce their contributions.

Brian - make sure the levy doesn't count towards the age-related limits for tax relief!

Thinking of reducing your pension contributions?

I know of some people who have reduced and in some cases stopped their pension contributions recently. Some did so due to external circumstances - job loss, slowdown in business etc. Others did it because the value of the fund had dropped recently. For those in the latter category, have a read of the following article from the Motley Fool / Yahoo! Finance - The Move You're Going to Regret

It's a US-centred article, but the principles apply to Ireland and anywhere else.

AIB cut variable & fixed rates

I see today that AIB have cut variable rates on residential mortgages in line with the most recent ECB rate cut. Standard Variable is now 3.25% (APR 3.3%).

Fixed rates have been cut also - two year fixed is now 3.00% (APR 3.04%) which suggests that the powers that be are predicting a further cut in the variable rate in the not-too-distant future.

Veronica Ferguson R.I.P.

One more personal post before getting back to business.

Again - a word of thanks to colleagues, clients, friends & family for their support and sympathy on the death of my mother, Veronica Ferguson on 15th December 2008.

It has, of course, been difficult to lose both parents within such a short period of time, but I believe it's how they would have wanted, as they were inseparable for many, many years.

So thanks for all the messages of sympathy and support and a final thanks to my parents for doing such a wonderful job - if I can do half as well with my own kids, I'll consider myself a good parent.

Denis Ferguson R.I.P.

A quick personal note to thank all clients, industry colleagues and friends who expressed sympathy with me in various ways on the death of my father, Denis Ferguson on 21st October 2008. Your support is greatly appreciated.

Dad was very ill for some months and particularly so in the last few weeks of his life, so I suppose we were as prepared as we could be. But nothing prepared me for the overwhelming sadness I felt when he eventually died, or how much I miss him even after just a few short weeks.

That said, I feel lucky to have enjoyed a great relationship with Dad and how long I did have with him, given that he was unusually old when I was born. The fact that he lived to see and know all his five grandchildren was also a bonus. I'm tremendously proud of his many achievements in life and the very positive influence he had on mine.