As we all know yesterday the Minister for Finance, Michael Noonan delivered the Budget for 2014 to the Irish public. In an ongoing effort to secure he nations exit from the EU bailout programme and revive our economic some drastic changes had to be made in an effort to meet our on going liabilities and enable the nation to move forward and have a new future.

I have outlined some of the fundamental Pension changes that are due into effect off the back of yesterdays budget;

Maximum Pension Fund

The minister has confirmed a reduction in the Standard Fund Threshold from €2.3m to €2m from the 1st of January 2014. He has also amended the current single valuation factor of 20 used to value Defined Benefit pension entitlements to a range of higher factors which will vary depending on the age that the pension is drawn down.

Pension Levy

The existing 0.6% p.a Pension Levy introduced to originally fund the Jobs Initative in 2011 will be abolished from the 31st of December 2014. But don’t take that literally because in actual fact he increased the existing 0.6% levy by an additional 0.15% making the new pension levy of 0.75% payable for 2014, with the levy reducing to 0.15% for 2015. I would like to draw your attention to the below extract from Michael Noonan back when the levy was initially introduced in 2011;

‘The Finance Bill offers clarity on the operation of the levy. It inserts a new section charging an annual levy of .06% stamp duty on the market value of assets under management in pension schemes approved by the Revenue. The levy is effective from 1 January 2011 and will remain in place until 2014’

So in stark contrast to his speech in 2011 we are now seeing the levy increase in 2014 to the new rate of 0.75% when we should be seeing the levy abolished.

DIRT & Exit Tax

We have seen the government make a conscious effort to discourage savings within the nation. Both DIRT and Exit Tax will increase from the existing rate of 36% to the new rate of 41% which applies to Life Assurance policies and Investment funds. The increased rate will apply to payments, including deemed payments, made on or after 1st January 2014.

Untouched

• Tax Relief for both employer and employee contributions subject to marginal rates.
• Employer corporation tax remains at 12.5%
• Earnings cap for pension contributions remains at €115,000.

Comment

For the majority of individuals it is good news from the Budget 2014, while people may have taken a hit in other areas it is the countries highest earners that have been impacted with the new Pension limits. For the vast majority of individuals you can still continue to contribute to your pension and receive tax relief as before, and saving through a pension scheme will continue to be the most tax-efficient way of saving for retirement. All in all the new €2m threshold will provide an end target for high earners to aim for and anything in excess of this will be severely penalised.

If you have any questions in relation to the new changes please do not hesitate to call us today.

 

*All above information is subject to the 2014 Finance Bill due to be released next Thursday October 24th.