Budget 2021

No change to private pensions

There were no changes in relation to private pensions in Budget 2021. Any structural changes are expected to be phased in over the next couple of years as the Pensions Authority and the Department of Employment Affairs and Social Protection start to implement some of the pension changes agreed following the various consultations (e.g. auto-enrolment, interdepartmental pensions reform and taxation group, Master Trust) as well as transposing the long overdue requirements of the IORPS II directive into Irish law.

Social Welfare pensions

The Living Alone Allowance is to increase by €5 to €19 per week. The State pension (contributory) personal rate will remain at €248.30 per week. The State Pension is currently payable at age 66. This was due to increase to age 67 from 2021 (for those born after 1 January 1955) with a further increase to age 68 from 2028 (for those born after 1 January 1961).

However, it was confirmed in Budget 2021 that the State pension age would remain at 66 and the proposed increase will be put off while a review is carried out. A Pensions Commission will be established and the Government will consider the Commission’s report in due course.

Christmas bonus

The Christmas Bonus for December 2020 for pensioners and social welfare recipients (including those who were in receipt of the Pandemic Unemployment Payment (PUP) as at 1 December 2020 for at least four months will be paid at 100% of their respective State benefit weekly rate.

Impact on Approved Minimum Retirement Funds and Approved Retirement Funds

Those with Approved Minimum Retirement Funds (AMRFs) who are in receipt of a full State pension (contributory) will continue to satisfy the guaranteed income requirement (€12,700 pa).

Those with AMRFs who are in receipt of a lower rate of State pension (contributory), the Christmas bonus and other relevant allowances should review their guaranteed income to see whether they now satisfy the minimum income requirement (€12,700).

Where they do qualify, these AMRFs convert to Approved Retirement Funds (ARFs) where proof of guaranteed income is provided to the relevant AMRF/ARF Provider (Qualifying Fund Manager – QFM).

Any pension changes

We wait for the Finance Bill 2020 (expected to be published on 22 October 2020 to see if there will be ‘fine-tuning’ of any monetary amounts/limits, rather than any wholesale changes to the structure and benefit options.

Pensions - no changes

In summary, there were no changes to the following:

Tax Relief - Employer Pension Contributions

Corporation Tax relief will continue to be available on employer pension contributions paid - subject to the overall maximum pension limit.

Tax Relief - Employee Pension Contributions

This will continue at the marginal rate of income tax but subject to the Age Related Contribution Limits and Earnings Cap, if applicable (and overall Revenue Maximum Approvable Benefit limits).

Employer Corporation Tax 

The rate is to remain at 12.5% on trading income.

Earnings Cap

The amount to remain at €115,000.

Retirement Lump Sum

Up to €200,000 remains tax-free and amounts from €200,000 to €500,000 will be taxed at 20%.

Standard Fund Threshold

The Taxes Consolidation Act (Chapter 2C of Part 30) imposes a limit or ceiling on the total capital value of pension benefits that an individual can draw in their lifetime from tax-relieved pension products, where those benefits come into payment for the first time on or after 7 December 2005. This is called the Standard Fund Threshold (SFT) and is currently €2 million. There are significant additional tax liabilities where the limit is exceeded.

We will wait for the Finance Bill 2020 (due to be published on 22 October 2020) to see whether the SFT from 2021 has been amended.

Life and taxation

There was no specific mention of the reduction in DIRT in Budget 2021 - and the scheduled phased reduction in DIRT down to 33% in 2020 bought it into line with the current rate of Capital Gains Tax (33%).

Unfortunately the Minister did not remove the 1% Insurance Levy or reduce the rate of Exit Tax on Life Assurance Policies and Investment Funds and it remains at 41%.

Income Tax

No increase in the income tax standard rate band for all earners for 2021. These remain at €35,300 for single individuals (with no dependant children) and €44,300 for a married couple/civil partners, with one income.

The self-employed earned income credit will increase by €150 a year, from €1,500 to €1,650.

Universal Social Charge (USC) USC Rates & Bands from 1 January 2021 will be:

Incomes of up to €13,000 are exempt. Otherwise:

• €0 to €12,012                0.50%

• €12,012 to €20,687        2.00%

• €20,687 to €70,044        4.50%

• €70,044+                       8.00%

Self-employed income over €100,000: 3% surcharge

Savings: Corporate Deposits

The current corporate exit tax rate remains at 25%, in line with corporation tax for non-trading income.

Capital Acquisition Tax (CAT)

The Group A Threshold (gifts or inheritance from parent) remains unchanged at €335,000.

The Group B Threshold (gifts or inheritance from brother/sister/aunt/uncle/grandparent) remains unchanged at €32,500.

The Group C Threshold (relationship other than A or B) remains unchanged at €16,250.

The rate of Capital Acquisition Tax remains at 33%.

Capital Gains Tax (CGT)

Capital Gains Tax rate remains at 33%.