Pensions – Changes
There were no significant changes in relation to private pensions in Budget 2019. This was no surprise. Any structural changes are expected to be phased in over the next couple of years as the Pensions Authority and the Department of Employment Affairs and Social Protection start to implement some of the pension changes agreed following the various consultations (e.g. Auto-enrolment Strawman Proposal, Interdepartmental Pensions Reform & Taxation Group, Mastertrust Consultation) as well as transposing the requirements of the IORPS II directive into Irish law.
National Pensions Road Map / Auto-Enrolment
Delivering on a commitment made in the Government’s Roadmap for Pensions Reform 2018-2023, on 22 August 2018 Regina Doherty TD, Minister for Employment Affairs and Social Protection launched a public consultation process and a Strawman proposal for a new ‘Automatic Enrolment’ Retirement Savings System in Ireland.
The Reform Plan launched earlier this year confirms that the Government will introduce Automatic Enrolment (AE), by 2022, as a State sponsored supplementary employment related retirement system. It is intended that those saving in the AE system will be supported by both employer and State contributions. Whilst workers will have the freedom to opt-out should they so choose, experience in other countries indicates that once automatically enrolled workers tend to remain within the system.
Final details of the scheme will be announced in due course following a review of the various submissions as part of a wider five year National Pensions Roadmap, with the first contributions under Auto Enrolment expected by 2022.
Social Welfare Pensions
The main announcement for Pensions in Budget 2019 related to an increase to all Social Welfare payments, as follows:
The Minister for Public Expenditure and Reform, Paschal Donohoe, announced a €5 per week increase in all social welfare payments.
This means that the weekly rate of State Pension (Contributory) – Personal Rate will increase from €243.30 per week to €248.30 per week from March 2019, with proportionate increases for qualified adults and those on reduced rates.
The Christmas Bonus for December 2018 is to be fully restored for pensioners and social welfare recipients to 100% of their respective State benefit (previously 85%).
Impact on AMRFs/ARFs
As a result of the above, clients with AMRF’s who are in receipt of a full State Pension (Contributory) will now satisfy the guaranteed income requirement (€12,700).
Clients with AMRFs who are in receipt of a lower rate of State Pension (Contributory) and the Christmas Bonus should review their guaranteed income to see whether they now satisfy the minimum income requirement (€12,700).
Where they do qualify, these AMRFs convert to ARFs where proof of guaranteed income is provided to the relevant QFM.
Other Pension Changes
We wait for the Finance Bill 2018 (expected to be published next Thursday 18th October 2018) to see if there will be “fine-tuning” of any monetary amounts/limits, rather than any wholesale changes to the structure and benefit options.
Pensions – No Changes
In summary, there were no changes to the following:
Tax Relief – Employer Pension Contributions – Corporation Tax relief will continue to be available on employer pension contributions – subject to the overall maximum pension limit.
Tax Relief – Employee Pension Contributions – This will continue at the marginal rate of income tax but subject to the Age Related Contribution Limits and Earnings Cap, if applicable (and overall Revenue Maximum Approvable Benefit limits).
Employer Corporation Tax – rate to remain at 12.5% on trading income.
Earnings Cap – amount to remain at €115,000.
Retirement Lump Sum – up to €200,000 remains tax-free and amounts from €200,000 to €500,000 will be taxed at 20%.
Standard Fund Threshold
The Taxes Consolidation Act (Chapter 2C of Part 30) imposes a limit or ceiling on the total capital value of pension benefits that an individual can draw in their lifetime from tax-relieved pension products, where those benefits come into payment for the first time on or after 7 December 2005. This is called the Standard Fund Threshold (SFT) and is currently €2 million. There are significant additional tax liabilities where the limit is exceeded.
We will wait for the Finance Bill 2018 to see whether the SFT from 2019 has been amended.
Life & Taxation – Changes
Although there was no specific mention of the reduction in DIRT in Budget 2019, there is a scheduled reduction of 2% due for 2019 as part of an ongoing phased reduction in DIRT (until 2020) which was started two years ago in 2016.
Unfortunately the Minister did not remove the 1% Insurance Levy or reduce the rate of Exit Tax on Life Assurance Policies and Investment Funds and it remains at 41%.
The following changes to Life Products & Taxation were announced:
An increase of €750 in the income tax standard rate band for all earners, from €34,550 to €35,300 for single individuals (with no dependant children) and from €43,550 to €44,300 for married one earner couples.
Universal Social Charge (USC)
USC Rates & Bands from 1 January 2019:
Incomes of up to €13,000 are exempt. Otherwise:
€0 to €12,012 0.50% (unchanged)
€12,012 – €19,874* 2.00% (unchanged)
€19,874* – €70,044 4.50% (was 4.75%)
€70,044+ 8.00% (unchanged)
*Increased by €500
Self-employed income over €100,000: 3% surcharge
The self-employed earned income credit will increase by €200 a year, from €1,150 to €1,350.
DIRT Tax, Exit Tax and Insurance Levy
With regards to Savings and Investment, although there was no specific mention in today’s budget, the phased reduction in DIRT, introduced in 2016, will reduce to 33% by 2020 in 2% p.a. increments. At that stage it will be in line with the current rate of Capital Gains Tax.
This means that the rate of DIRT will reduce by 2% to 35% for 2019.
The rate of Exit Tax on Life Assurance Policies and Investment Funds was unchanged and remains at 41%.
The Insurance Levy on Protection policies and investment/savings policies was not reduced or removed and remains unchanged at 1%.
Savings: Corporate Deposits
The current corporate exit tax rate remains at 25%, in line with corporation tax for non-trading income.
Capital Acquisition Tax (CAT)
The Group A Threshold (gifts or inheritance to son/daughter) is increased by €10,000 to €320,000.
The Group B Threshold (gifts or inheritance to brother/sister/nephew/niece/grandchild/grandparent) remains unchanged at €32,500.
The Group C Threshold (relationship other than A or B) remains unchanged at €16,250.
The rate of Capital Acquisition Tax remains at 33%.
Capital Gains Tax (CGT)
Capital Gains Tax rate remains at 33%.
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