Irish DB pension holders now have another substantial reason to smile and be optimistic about their pension thanks to the IFG Corporate Pensions firm. The firm has sturdily protested against what they term as “pension apartheid” and insisted on the need to increase the DB members’ pension. This call, if heeded to, will see DB members’ earn a yearly average pension of €64,000 more than their DC counterparts.
Fionan O’Sullivan, the director of the firm explained that DB members deserve the augment because of the current Irish cap of €2.3m. He further elucidated this statement by adding that the cap facilitates a yearly pension disbursement of €115,000 for every individual because of the 20:1factor. DC members on the other hand, have annuity rates of 30:1 to 45:1 which only make them eligible for an annual pension amount which ranges between €51,000 and €76,600 for every individual. Additionally, the preferential tax treatment, which only the DB members enjoy, places them at a much better position compared to the DC scheme members.
In his explications, the IFG Corporate Pensions director used the example of a DB scheme employee who makes an average of €200,000 at the time he retires. Such an individual qualifies for a pension amount which is half his retirement salary. This coupled with a 150% lump sum unfortunately subjects a pension holder for a double taxation since the approximate national value is €2.3m.
He contrasted this with a private sector individual who has an investment of a life annuity of €100,000 per year. Such an individual would automatically fall within the over-cap bracket if the payment indexation is circa €4,000,000 and the lump sum similar to his employed counterpart (€300,000). This would make him pay an extra of 41% tax, which equates to over €800,000.
If the private individual tried to enjoy the pension benefits of a senior civil who has a DB scheme, he would unfortunately meet heavy tax penalties. In fact, he would give up his lump sum and surrender an investment to meet the full penalties. The director termed this as “very inequitable”.