Ministers face €1m tax bills under tighter pension rules
Published 06/01/2011 | 05:00
THE pensions of retiring cabinet ministers and former Taoiseach Bertie Ahern are so generous that they exceed the limits allowed under new tax rules, it has emerged.
This means the Government will be forced into the embarrassing position of having to apply to the Revenue Commissioners for a special dispensation for these pensions.
If this is not obtained, retiring ministers such as Noel Dempsey and Dermot Ahern could be hit with a tax bill of €1m each, leading pensions expert Tony Gilhawley of Technical Guidance has calculated.
He pointed out that last month's Budget set a new limit of €2.3m on the maximum value that can be in a pension for tax relief purposes.
Any excess over the €2.3m "personal fund threshold" can be taxed at 41pc, Mr Gilhawley explained.
Those who have a pensions fund greater than €2.3m have to apply to the Revenue Commissioners for a higher threshold.
Mr Gilhawley said retiring ministers and former Taoiseach Bertie Ahern will have pensions worth well in excess of €2.3m.
Some pensions experts have calculated that, based on the fact that ministers can retire at 50, they effectively have a pension fund worth almost €7m.
Mr Dempsey will get a pension of €120,000 a year, and a tax-free lump sum of €159,000.
Even if his pension fund is valued at around €5m, it could still leave him exposed to a tax charge just above €1m, Mr Gilhawley has calculated.
The administrator of the ministerial pensions and the retiring ministers and Taoiseach will be jointly liable for this tax charge, the pensions expert said.
The only way to avoid having to pay a massive tax bill would be to appeal to the Revenue for a higher personal fund threshold than is allowed in the new rules.
Mr Gilhawley said this had put retiring Cabinet members in a "pickle" and would be embarrassing for them.
"If they do apply for a personal fund threshold, it will look like 'tax avoidance' by retiring politicians on a grand scale.
"If they don't apply for a personal fund threshold they face a significant reduction in their pensions. A true test of their patriotism," he commented.
Last month this newspaper revealed that it would cost up to €35,000 a month to fund the sort of pension Justice Minister Ahern and Transport Minister Dempsey will receive when they leave office.
Both have announced that they will not be seeking re-election.
Mr Dempsey will be able to retire with a first year package worth €313,000 -- and his annual pension thereafter will be worth more than he would have earned if he returned to the Dail as a backbench opposition TD.
Mr Dempsey (57) and Mr Ahern (56) -- who will also receive a pension of €120,000 and a lump sum -- were elected to the Dail in 1987 and both have been in Cabinet for 13 years.
Ministers can retire at 50 on a pension that would cost up to €7m to buy in the private sector, pensions experts Independent Trustee Company (ITC) calculated.
Tommy Nielsen, of ITC, claimed that after just 10 years in the Cabinet, ministers were walking away with pension pots worth around €6.8m each. To fund a pension as generous as this it would require a private sector worker to put a whopping €35,000 a month into a fund.
The Department of Finance was not available for comment last night.