The application deadline has been prolonged for the Deputy Garda Commissioner role. Despite the base salary sitting at around €200,000 annually, a notable €30,000 more than assistant commissioners would receive, a significant lack of interest has been observed among the forces due to concerns over potential negative repercussions on their pensions.
This puzzling situation can be traced back to 2005, when measures to inhibit individuals from capitalising on tax benefits related to pensions were rolled out by the government. As part of these measures, significant portions would be taken out of collected amounts exceeding €5 million. In 2014, the threshold, referred to as the Standard Fund Threshold (SFT), was lowered to €2 million.
During its inception, the Department of Finance hypothesised that individuals would cease contributions as they reached the limit, which independent pensions consultant, Tony Gilhawley mentioned in the Irish Tax Review, is not feasible for public servants. Typically, they are unaware of the total amount in their fund, and thus don’t have substantial control over its accumulation.
Highly paid public servants are primarily affected by this issue. At this point, Gilhawley suggested that public servants like consultants who earn nearly €300,000 annually, under full-service public-only contracts, stand to lose a quarter of their pensions for the first 20 years due to the restrictive thresholds. Many members of the Association of Higher Civil and Public Servants, judges and those serving in other specialist roles are also at risk.
Despite the challenges, public servants tend to face favourable conditions when addressing these issues at retirement. The SFT is also especially pertinent for high earners in the private sector. Recently, Ibec depicted the current ceiling as a “hindrance to business growth”, and the Irish Tax Institute described the existing state of affairs as “harsh.”
KPMG has advised that any funds exceeding a certain limit could be subject to an effective tax rate of as much as 68.8%. However, what does this mean for everyone else?
The majority of the population, who do not receive high earnings, have distinct concerns. Less than half of employees actually have a pension related to their scale of income, and the common estimate for an average pension fund just surpasses €100,000.
The proposed introduction of an automatic enrolment pension scheme, whenever it might become effective, aims to increase the number of individuals with a pension beyond the conventional State provision, even though EFT may not be a relevant factor for most.
Will the current situation alter in the foreseeable future?
Indeed, it is expected to transform. A number of representative bodies have put forth the proposition that the threshold for the above taxations ought to be elevated, suggesting a range between €2.5 million and €3.5 million. The Commission on Taxation and Welfare have advised regular benchmarking in their report. The findings of a newly conducted independent review have been passed to the Finance Minister, Jack Chambers, who is reportedly considering their suggestions in relation to broader budget matters. A key deliberation will likely be how to address the recruitment for high-ranking roles within public sectors.
Despite offering potential solutions on paper, how will the automatic enrolment pension scheme operate in reality?