Public Servants should consider retiring now

I recently looked at a pension projection for a 61 year old hospital consultant, working for a HSE hospital. The projection gave him details of his pension and lump sum from the superannuation scheme should he retire now, as well as the projected figures if he stays to age 65.

The twist, however, is the fact that the projections take no account of the 15% salary reduction to which he will be subjected, as a result of Budget 2010. Because public service pensions are based on a percantage of final salary, if your salary is reduced by 15%, your pension will be also.

But in the Budget, a window of opportunity was provided. "To ensure that any increase in the number of retirements can be managed, the legislation on pay reductions in the public service will provide that any retirements in 2010 would be on existing, pre-cut pay terms." So any Public Servant retiring in 2010 will have their pension based on 2009 salary level.

Given that Public Service pensions accrue at a rate of 1/80 or 1.25% of final salary for each year of service, a higher earner facing a pay cut of 15% would take 12 years to build up the lost pension entitlement, unless pay increases come back into fashion during that period. Someone facing a pay cut of 8% would take over 6 years to build up the lost pension entitlement.

So if you're a Public Servant and within sight of pension age, you might do well to consider retiring now. Which is presumably a deliberate move by the Minister.

Deadline approaches for pension contributions

If you're filing your 2008 tax return and paying your tax online using Revenue's online service www.ros.ie you have until November 16th to do so. You can reduce your tax bill by making a pension contribution before you make your tax return and backdating the tax relief on the pension contribution against your 2008 tax liability.

For high earners, this is the final opportunity to claim tax relief on pension contributions up to the 2008 income ceiling of €275,239. The income ceiling has been reduced for the 2009 tax year to €150,000.

Pensions - you can go your own way

I was at a Standard Life presentation today and one of the speakers noted that since Standard Life launched their Synergy platform in 2006, they now have over 1,200 Stocktade accounts containing an average of €45,000 each.

Stocktrade is Standard Life's chosen stockbroker for their self-directed pension contract. Using the Standard Life / Stocktrade platform, we can set up pension plans for clients allowing them to mix their fund between managed funds, cash deposits, direct property (which they choose) or shares, ETFs and bonds of their own choosing.

Interesting that Irish pension clients have chosen to entrust €54 million via Stocktrade into shares, ETFs and bonds of their own choosing. Far from being a niche product for the High Net Worth customer, self-directed pension funds are now coming into their own as something open to everyone - Personal Pensions and Buy Out Bonds included.

Claims - It could be you

For a bit of light reading, I was just reading over Irish Life's claims statistics for 2008. An insurance company's claim-paying record is hugely important.

In 2008 Irish Life paid out over €220 million in claims, broken down roughly as follows: -

• More than €134 million in life cover claims to over 2000 families
• More than €34 million in Specified Illness claims; and
• More than €52 million to over 3,000 Income Protection claimants

Considering that this is one company, albeit the largest in the country, these are sobering statistics. No doubt each claimant thought they would never need the cover when they took it out.

Poor response to second-home tax

I blogged earlier this month here about the €200 tax on second homes. Today is the final day for payment of this tax. According to RTE, only €15 million has been collected to date. That's 75,000 houses out of a potential 200,000.

Anyone eligible who doesn't pay this faces penalties.

New style of pension tax relief

Credit where it's due to the Commission on Taxation for taking a long-term view on reform of pensions legislation, rather than concentrating on how money could be saved in the short term. Many of their proposals on pensions are largely focused on making pension planning more attractive, rather than cutting costs. Given the changing demographics of our country, this is very welcome, especially since short-term cost-cutting might have been an easier sell to the Government in the current climate.

One of their more interesting proposals is that the idea of "tax relief" on pensions should be replaced with a more transparent system, whereby for every €1.60 an individual contributes to a pension plan, the Government adds €1.00. For the first five years, the Government would match contributions €1.00 for €1.00.

This system would deal with the age-old perceived inequality that our current system offers more benefit to higher-rate taxpayers than to those on the lower rate. It is the equivalent of offering 50% tax relief for five years, then 38% relief thereafter. To take an example of a pension plan that exists for 25 years, that's the equivalent of an average rate of tax relief of over 40%. This is lower than what many high rate taxpayers currently enjoy but higher than what low rate taxpayers are currently offered.

Perhaps more importantly, it's simple. The idea of the Government putting money into your pension plan directly somehow sounds more appealing than the current tax relief system, even though tax relief is also the Government adding money to your pension plan - just expressed in a different way.

Let's hope Brian Lenihan pushes this one through. Radical pensions reform can tend to take an age to implement, as I've said before, even though Charlie McCreevy proved that it doesn't have to.

The pensions section of the Commission's report can be read here.

Don't forget to pay the €200 levy on second properties

The Local Government (Charges) Act 2009 introduces a €200 annual charge on non principal private residences, payable by the owners to the local authority in whose area the property concerned is located.

The final date of payment of this charge is the end of this month, i.e. 30th September 2009. It's your responsibility to pay this charge - you won't be receiving any reminders in the post.

Full details (including how to pay it) can be obtained at http://www.nppr.ie