BUDGET 20 14 Alan Bigley W ha t the Minister sa id Sta nd a rd - - PowerPoint PPT Presentation

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BUDGET 20 14 Alan Bigley W ha t the Minister sa id Sta nd a rd - - PowerPoint PPT Presentation

May 02, 2023 126 likes •344 views

BUDGET 20 14 Alan Bigley W ha t the Minister sa id Sta nd a rd Fund Threshold (SFT) red uced to 2m Gra nd fa thering of existing entitlem ents Confirm ed m a rgina l ta x relief still a p p lies DC v a lua tion m ethod ology uncha

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SLIDE 1

BUDGET 20 14

Alan Bigley

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SLIDE 2

PwC

W ha t the Minister sa id

2 November 2013 Budget 2014

Sta nd a rd Fund Threshold (SFT) red uced to € 2m DC v a lua tion m ethod ology uncha nged DB benefits a ccrued p rior to 31/ 12/ 20 13 v a lued a t 20 x DB benefits a ccrued p ost 31/ 12/ 20 13 v a lued ba sed on a ge a t retirem ent rela ted fa ctor ra nging from 37x a t 50 to 22 x a t 70 Pension lev y of 0 .75% in 20 14 a nd 0 .15% in 20 15 Gra nd fa thering of existing entitlem ents Confirm ed m a rgina l ta x relief still a p p lies

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SLIDE 3

PwC

W ha t the Fina nce Bill cla rified

Budget 2014 3 November 2013

Lum p sum – 25% of new lim it of w hich € 20 0 ,0 0 0 ta x free PFT Certifica tion p rocess Contribution lim it € 115,0 0 0 Pre-Com m uta tion Va lues

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SLIDE 4

PwC

W ha t the Minister d id not m ention

4 November 2013 Budget 2014

Ind exa tion of old € 5.4m a nd € 2.3m lim its Ind exa tion of new € 2.0 m lim it

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SLIDE 5

PwC

Red uction in lim its PwC pre budget survey

  • Low awareness of potential

changes – 59%

  • High awareness among HR &

Finance professionals – now a challenge to educate those affected

  • Much wider range of
  • rganisations affected
  • Over 80% of respondents still

view pensions as an important part of total remuneration

Budget 2014 5 November 2013

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SLIDE 6

PwC

W ha t is the new lim it?

  • €60,000 per annum?

6 November 2013 Budget 2014

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SLIDE 7

PwC

W ha t is the new lim it?

  • €60,000 per annum?
  • Not for some time!
  • DB pension of €60,000

accrued at 31/ 12/ 2013 still leaves €800,000 of potential additional funding

7 November 2013 Budget 2014

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PwC

The a bolished a nd re-introd uced lev y

8 November 2013 Budget 2014

Year % 2014 0.75% 2015 0.15% 2016 ? “Fund the Jobs Initia tiv es a nd to m a ke p rov ision for Sta te lia bilities w hich m a y em erge from p re-existing

  • r future p ension fund d ifficulties”
  • Sam e basis as before
  • Raise €135m in 2015
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SLIDE 9

PwC

W here a re w e now ?

  • Greater certainty
  • But challenges to navigate
  • Compounded by:

9 November 2013 Budget 2014

Multiple pension pots Various forms (DB, DC, RAC, PRSA, AVC’s...) Various arrangements Various providers

in with in

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SLIDE 10

PwC

W ho is a ffected ?

Budget 2014 10 November 2013

Breaching at 1 January 2014

Likely to breach limits in future

Will never reach the limits

  • 1. Am I breaching?
  • 2. Will I breach in the future?
  • 3. What flexibility do I have to

manage my position?

Breached pre Budget 2013

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SLIDE 11

PwC

Pension “hell”

Budget 2014 11 November 2013

Age: 50 Pension assets: €2 million Normal retirement age: 60 Reduction in Tax Free Lump Sum? No future ability to draw €300,000 at 20%? Unable to access benefits early

Scenario

Projected value @ 60: €3.25m Tax bill @ 60: €512,500 Pension levy: 0.75% in 2014 0.15% in 2015 (€18,000)

Outcom e

Notes: 5% pa grow th, no future contributions

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SLIDE 12

PwC

Pension “hell”

Budget 2014 12 November 2013

Age: 50 Pension assets: €2 million Normal retirement age: 60 Reduction in Tax Free Lump Sum? No future ability to draw €300,000 at 20%? Unable to access benefits early

Scenario

Projected value @ 60: €3.25m Tax bill @ 60: €512,500 Pension levy: 0.75% in 2014 0.15% in 2015 (€18,000)

Outcom e

Notes: 5% pa grow th, no future contributions Access benefits at 50:

  • Immediate €200k TFLSum
  • Immediate €300k @ 20%
  • €1.5m invest in an ARF

Projected value @ 60: €3.25m Tax bill @ 60: Nil Pension levy: Nil in 2014 Nil in 2015

Pension “hea v en”

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PwC

Abov e the lim it € 2.0 m +, € 2.3m +, € 5.4m + Employer approach

  • Who affected?
  • What level of support?
  • What planning facilitated?
  • Corporate governance concerns?
  • No longer a retention tool
  • Bespoke arrangements?
  • Likely future remuneration model

13 November 2013 Budget 2014

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SLIDE 14

PwC

Abov e the lim it € 2.0 m +, € 2.3m +, € 5.4m + Alternative to pension accrual

  • Need to maximise the value of

the available capacity – whether capital sum, pension for life or a combination

  • Cash alternative yields € 43.30

after tax, USC and PRSI per €100 spend

  • UK experience DB alternate is

around 25% to 30% of salary

14 November 2013 Budget 2014

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SLIDE 15

PwC

PFT Certifica tion Process

  • Valuation of benefits from scheme administrator
  • Electronic system being designed
  • 12 months to file from system becoming available
  • Revenue will issue a PFT certificate to individuals
  • Transitional rules where benefits crystallise before new system

established

Budget 2014 15 November 2013

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SLIDE 16

PwC

Abov e the lim it € 2.0 m +, € 2.3m +, € 5.4m + Exit pension arrangements

  • Facilitate DB transfers out
  • Potential early retirement
  • Transfers to ARF
  • Careful planning

– Order of access can influence result – DB often accessed last – Tax met from DB pot – Commutation rates may be uncompetitive

  • Investment of non pension assets

16 November 2013 Budget 2014

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PwC

Below the lim it but likely to brea ch

  • Accumulation to €2.0m still great planning

17 November 2013 Budget 2014

Employer cost €100.00 Net €43.30 Dirt 41%, Dividends 50%+ Pension €100.00 Gross roll up Lump sum drawdown ARF access Tax on drawdown net effective rate 25% * Estate planning

* Assumes drawdown by a married couple

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PwC

Below the lim it but likely to brea ch Other factors

  • Age related factors apply

– But how significant? – DB only

  • Planning around reaching the cap

– AVC refunds – Cease employee contributions

  • Increase in State retirement age
  • Mix of DB and DC at retirement can be beneficial
  • Future for DB plans – priority order changes
  • Treatment of this group likely impacted by policies adopted for

earlier group

18 November 2013 Budget 2014

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PwC

DB p ension red uction – com m uta tion fa ctor?

Bud get 20 14 Administrators

19 November 2013 Budget 2014

Ta x joint a nd sev era l lia bility

  • n Ad m inistra tor

Offset of 20 % ta x a rising on lum p sum Ta x p a id w ithin three m onths Cum ula tiv e ca lcula tions of p ensions, ca p ita l v a lues a nd lum p sum s Sta tutory Decla ra tion required before relea se of fund s

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PwC

Conclusion

20 November 2013 Budget 2014

Pensions still m a ke sense up to the lim it Now m ore certa inty to the rules – v ery w elcom e Lev y still a fa ctor How ev er ca p now im p a cts a m uch grea ter ra nge of ind iv id ua ls Multip le em p loy m ents = m ultip le a rra ngem ents Op p ortunity to m a xim ise benefits how ev er ca reful thought a nd p la nning required

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SLIDE 21

www.iapf.ie

THANK YOU

Alan Bigley, PwC