In Ireland, it’s notable that those closer to the corridors of power often have their needs looked after more preferentially. An issue that has been in the public eye recently, due to the vigorous reporting by sectors of the media, is the challenge of attracting individuals for high-ranking roles within the gardaí. The Irish Independent brought attention to potential sweeping changes at the helm of the force, attributing the cause to looming substantial tax bills for high-ranking gardaí on retirement, generated by restricted tax relief on pension contributions. This predicament led to a lack of interest in the deputy commissioner position initially.
The paper stated that currently serving assistant commissioners face growing tax liabilities with each month of service, estimating a retirement tax bill ranging from €200,000 to €300,000. That amount could surge to between €400,000 and €500,000 if they were to serve additional years in the deputy commissioner capacity.
However, it appears there is light at the end of the tunnel. Recent reports suggest that senior gardaí received confirmation that their pension concerns would be addressed. Consequently, multiple applications for the role of deputy commissioner were registered. This week, a governmental report proposed alterations to the taxation rules for pensions, changes that will most affect upper-earning public servants.
What needs to be remembered, though, while the facts surrounding senior gardaí’s struggles are accurate, is the narrative lacks some key information. The reason for such high tax bills for the gardaí, along with a selection of other senior public servants, is directly linked to the size of their pensions.
Introduced in 2005, the “standard fund threshold” set a limit for pension funds after it was revealed that highly paid private-sector individuals were using their pensions as tax evasion vehicles. Initially, this limit was €5 million, exceeding this amount rendered the matured fund taxable. However, this figure was brought down to €2 million during the financial downturn. Given that only a handful of affluent individuals can amass this amount in their pension fund, the impact was minimal.
Meanwhile, public-sector pensions work in a different manner. They are promises from the State, so they hold a “notional” value – their worth when converted into savings or investment returns. The high value of public-service pensions now implicates senior public servants, who were originally intended to shield against wealthy pensioners’ tax evasion.
There were substantial alterations to public-service pensions in 2013, projected to decrease their value and the State’s liabilities which currently stand at approximately €200 billion. However, the full effect of these changes will only be realised several decades later when these newly recruited public servants retire.
Currently, most public servants retiring are on the older scheme that gives them half of their final salary as an annual pension after 40 years of service, along with a tax-free lump sum that’s 1.5 times their final pay. Pensions tend to rise with active staff’s pay increments, so a high-ranking official earning €250,000 would receive a retirement pension of €125,000 and a €375,000 lump sum. The latter only becomes taxable after the first €200,000. No such provisions exist for private-sector employees, and indeed, 800,000 of them do not have a pension.
Calculations shared with me by expert pension analysts indicate that the cost to provide for the pensions of high-ranking public officials, such as state body heads, senior judges, and secretaries-general, would exceed €3 million. This hefty cost explains why they are being taxed; their pensions hold remarkable value. Interestingly, this subject seldom gets mentioned.
The situation is particularly pronounced for the gardaí as they accumulate pension rights faster than other state employees. A garda is entitled to full pension after 30 years of service, whereas the majority of other public servants require a 40-year tenure. Given the hazardous nature of a garda’s occupation, this benefit exists for valid reasons. However, it implies that if one joined the force in their early twenties (like many retiring today have), it becomes possible to retire with a complete pension and considerable lump sum in the early fifties. Notably, gardaí are typically the highest paid among public servants.
Department of Finance statistics reveal that a minute number of individuals face pension tax, roughly 250 in 2022. Besides, public servants have the capability to distribute the financial responsibility over 20 years by making a deduction in the already substantial pension. Moreover, if they pass away, the state would absolve the liability.
Regarding senior garda pensions, it’s uncertain what the correct course of action should be. It’s undeniable that the state relies on senior gardaí to take on these positions. As it stands, legally bound entitlements are a reality, and alterations are both unavoidable and possibly justifiable. But the situation highlights a significant pension divide within the nation, and it’s peculiar how it hardly receives attention. We shouldn’t be focusing our worries on the pensions of top public officials.