On 5 December 2012, the Minister for Finance published the budget for 2013. A number of significant changes have been made to the tax treatment of pensions in that budget. In particular on the positive side:
Although heavily tipped, there has been no change to the existing marginal rate relief available to employee pension contributions in this budget. The Government has confirmed that the pensions levy will not be extended beyond 2014. (The pension levy has contributed €900 million to the austerity measures so far with another €900 million to come in 2013 and 2014.) Members with additional voluntary contributions (AVCs) will be allowed to withdraw up to 30% of the value of their AVCs (subject to marginal rate tax) for a three year period with effect from the passing of the Finance Bill, 2013. The key adverse change is the confirmation that the maximum amount of pension that an individual can accrue in a tax efficient manner over their lifetime will be €60,000 per year from 2014. The details of the mechanism to achieve this are to be developed over the next year. In practice this will mean negotiation over the extent to which the current multiple of 20 (used for DB pensions to compare the pension with the maximum fund allowed by Revenue - known as the Standard Fund Threshold or SFT) is to be increased. At a multiple of 20 a €60,000 maximum pension equates to a maximum fund of €1.2 million but it is well known that a DC pot of €1.2 million is not sufficient to purchase a €60,000 annuity. A complicating factor will be how this restriction is to operate in respect of unfunded public sector pensions.
Individuals will still be able to provide for a pension in excess of this amount but those savings would not attract tax relief. It is estimated that a significant majority of occupational pension scheme members would not be affected by this cap.
Element Six – litigation in progress
A group of members of the Element Six (formerly De Beers) defined benefit pension scheme have commenced an action against the trustees of that scheme. The members of the scheme are claiming that they are owed a substantial pension contribution (estimated in the region of €40-50 million) from the principal employer as a result of the principal employer agreeing to a funding proposal in respect of the scheme.
The employer served a notice of cessation of contributions on the trustees in 2011 and the defined benefit pension plan was wound...