Yesterday, pensioners throughout the country queued at Revenue Commissioners (Irish Tax authorities) offices following receipt of a letter in the last couple of days advising them that they have been paid State pensions without the appropriate tax deductions. This follows the discovery that 115,000 pensioners who are in receipt of both private and state pensions may not have paid the correct tax liability because the State has hitherto not examined the combination of information at the Revenue Commissioners and the Department of Social Protection. Many pensioners appeared anxious and upset that they may face an unforeseen liability in 2012 of up to €4,400 per annum and that the Revenue can theoretically seek to claw-back tax for the past four years as well. Others were more philosophical and seemed to accept that if they collected the income, they should pay the correct tax.
I suppose there’s never a good time to be told that you need pay unforeseen tax, but the timing of the mail-out of letters to the pensioners is curious. When Minister for Finance Michael Noonan stood up in the Dail on 6th December 2011 to deliver the final part of Budget 2012, there was no mention whatsoever of the imminent claw-back for tax on pensions. Nor was there any mention of this development in Minister for Public Expenditure and Reform, Brendan Howlin’s Budget 2012 speech on 5th December, 2012.
But, the subsequent Budget 2012 document which was published on 7th December 2011 set out the financial effect of the announced changes – this is what it said:
And apparently in radio interviews yesterday, a spokesman for the Revenue Commissioners, Declan Rigney is understood to have confirmed that the tax on pensioners in 2012 had already been accounted for in state finances.
So why wasn’t there an earlier announcement by Minister Noonan, or Minister for Social Protection Joan Burton?
Surely there wasn’t a cynical ploy to defer the news until after the Christmas period which accounts for much domestic economic activity, particularly in the retail sector?
And surely the Revenue Commissioners should be able to give better estimates of the underpayment of tax, if they have known about the issue for some months? How much will be collected in 2012 and how much was underpaid in each of the last four years which legally, can be clawed back from pensioners?
NAMA Wine Lake 
@ NWL SW pensions and SW benefits are in general taxable under Sch. E, however unlike almost all other income taxable under Sch. E, the PAYE system is not applied. (This is allowed under Section 984, TCA 1997)
Traditionally the tax due is collected by coding, i.e. reducing the tax credits and standard rate bands allocated against other sources, e.g. occupational pensions or earnings from employment. Those who were directly assessed were required to declare it.
The Dept of SW were, many years ago given additional staff, including an Asst. Secretary from Revenue to introduce the PAYE system for these benefits. The idea was quickly shelved I assume because the Minister for SW at the time did not want to be seen in a bad light. Collecting tax, even when due, is bad news, giving out money is good news.
Traditionally the Revenue increased the amount coded centrally by the average increase in PRSI contributions. However if the correct (full year amount was not coded then problems would arise in subsequent years.
The incoming Minister for Social Protection was advised of the issue by one of those who previously advised her on tax issues and she offered to operate PAYE at source as part of the efforts to balance the books. The alternative was to provide Revenue with an up to date list for coding, which was the option supported by Civil Servants.
Information relating to the taxable proportion of jobseekers/illness benefit is given regularly and a major programme took place in the last few years on transferring OPFP details.
There is a major staffing crisis in the Revenue, which has been known about for many years. JB put down a question in July 2008 on the age structure http://debates.oireachtas.ie/dail/2008/07/03/00070.asp, which clearly showed the degree of the problem. The Revenue have produced a review document http://www.revenue.ie/en/about/publications/comprehensive-expenditure-review.pdf, which if anything massively understates the degree of staff losses this year. It also sets out in Table 1.4 (page 5) various savings and additional yield targets.
My understanding is that the additional liability due in 2012 is closer to €100M, not the €45M mentioned in the Budget document. Around €400M of the €5,500M in total payable as pensions which has not been assessed with around a quarter taxable at 41%. It is also likely that various other income sources will fall out from these investigations
In relation to reviewing back years, this can be done easily by coding the amounts and getting the computer system to issue balancing statements/ revised assessments, however dealing with the phone calls and letters arising would swamp what is left of Revenue staff. However I would expect the Revenue to collect a good proportion of the back taxes by targeting.
There are a couple of groups where particular problems arise, one is widow(ers) with multiple pension sources, for example the retired school teacher in receipt of an occupational pension in her own right, an occupational survivor’s pension from her spouse’s former employer and a SW pension. Others include people resident here with foreign pensions, US & UK Social Security pensions for example, who may not have declared all of their sources of income.
The problem from a Revenue perspective is that not everyone over 66 was automatically in receipt of a SW pension. Most retired public servants for example are not in receipt of an OAP and while “younger” widows, i.e. those under say 80 may be entitled to widows’ pensions, many are not in both the Public & Private sectors as their spouses were not insurable under the older SW rules that applied up to the 1970s. It could not make assumptions that everyone is in receipt of a SW pension, when patently they were not.
Finally, there has not been a problem of cooperation between the Civil Servants of the DSP & Revenue. Rather there has been an unwillingness at a political level to make hard decisions. The kicking around of the regulation of the Charities sector is an even more blatant example of political unwillingness of politicians to make hard decisions.
Once the provision of the information to the Revenue had been expedited, it was purely an administrative issue. One of the few pleasures in working in the Revenue was the complete absence of the day to day political interference in administrative functions. The letters issued at this time because tax credit certificates issue at this time of the year, not because of media slumber. The Office of the Revenue Commissioners is independent and the Minister for Finance does not have a day to day involvement.
Sorry for being so long winded but the issue is a lot more complex than most of the media coverage.
@Niall
Very interesting detail.
Why shouldn’t every taxpayer complete an annual tax return (on or offline) even if only to simply show that all his/her income is covered by PAYE and to claim basic credits? I wonder what proportion of taxpayers complete annual returns? Surely, self-assessment demands preparation of annual returns by all taxpayers.
@ Brian Huge resources have been committed to restructuring the Irish tax system to ensure that the completion of tax returns by the vast majority are unnecessary.
The aim is to ensure that the correct tax is collected in the year off every employee. Where tax relief is granted it is done through a Tax Relief at Source (TRS) system, e.g. mortgage interest relief and medical insurance. or net pay arrangements, e.g. pension contributions and Permanent Health Insurance.
The system works well and is very cheap to run.
Those with other income are obliged to make returns and also many employees who have specific reliefs or credits or have income levels are issued with income tax returns on a regular basis.
The Revenue is already overloaded with information and receiving more income tax returns for the sake of getting the returns would be just additional headaches. It goes back to a cost benefit analysis
The Revenue has lots of information that it does not get around to using because there is just too much going on and not enough experienced staff. For example it has never properly utilised information from third party returns.
On an international basis, the Irish Revenue is up with the best, countries such as the Denmark.
If you want to go much further, additional experienced staff are required, perhaps up to 2,000. There are huge holes on the Customs & Excise side and particularly among street level management grades, HEO & AP. Can I refer you back to Joan Burton’s question on 3rd July 2008 http://debates.oireachtas.ie/dail/2008/07/03/00070.asp. Just look at the 51-60 age categories and remember you must add four years to get the current ages and look at the problem.
The early retirement scheme has and is destroying many organisations in the name of short-term headline savings.
Why go back 4 years? My understanding is that the Revenue Commissioners can go back as far as they want, 10 years, 20 years if they so wish.
Will it be applied to those who have already passed away, so those who take over the inheritance also end up with the liability?
Why should tax law discriminate between those pensioners who are higher earning than those on lower pension incomes? Obviously there are practical answers to this question, but tax discrimination against one class does not seem fair.
Depending on the amount of time elapsed, interest charged for delayed payment of tax can be very severe, 1% per month compound, and penalties can run up to 100% of the original amount.
Reminds me of a Judges decision not to grant free legal aid to a motorist who was in court in connection with a driving offense recently. The Beak stated that if one can afford to drive a car, one can afford to pay for a solicitor.
It did not occur to the judge that because of the high cost of motoring in this country that after paying for a car+tax+fuel+insurance+servicing+ various levies that one might not have any money left over to pay for a solicitor.
Why should teachers who completed a masters degree prior to December 2011 be given a uplift in salary, whilst those teachers who qualified post 7th December 2011 get nothing. Is that fair?
As to this being not announced in the budget, well the devil is in the detail, there was a awful lot not said on the two budget days in December.
@ Sporthog The Revenue is restricted to going back more than four years except in the case of fraud or neglect. Previously the Revenue could go back ten years.
There was no need to make any announcement as it was a purely administrative issue, part of the general information gathering that goes on within the Revenue.
When I joined the tax office say 40 years ago, all death cases were given high priority and followed through to the point of notifying the districts of those receiving inheritances of the amount they were getting.
Death cases are no longer worked in such detail. It all depends on the amount of work on hands, the experience and skills of staff. All of which are in serious short supply.
My own experience having been an executor a number of times and an administrator once that little investigation is now done. Information provided by way of written answers to Dáil questions suggests that there may be a lot of issues around death, inheritance and tax evasion.
@ Niall,
Interesting insights!!
@Niall There is no time limit in the case of fraud or neglect. Would non payment constitute neglect in your opinion ? Regards.
@ Paul No, not for such comparatively small amounts would it constitute neglect. Carelessness perhaps. Here is a link to the Revenue’s audit code
http://www.revenue.ie/en/practitioner/audit-code-of-practice/index.html.
@ Sporthog Here is the link to the piece on death cases http://www.revenue.ie/en/practitioner/audit-code-of-practice/death-cases.html
Revenue Commissioners would do well to check which pensioners have actually paid tax on their DSP before sending out threatening letters. My father has been submitting tax returns and paying tax on his state pension for the past number of years yet has received the same letter that every other pensioner has received. Seems like it’s one blunder after another by the RC / civil service from where i’m sitting.
We are talking about politicians whose latest wheeze for creating jobs is to give visas and residency permits to Russians, Indians, Chinese, Africans etc who will buy a few aul’ businesses in Ireland. “No need to invest too much, €200 grand will do, but shure if you haven’t got that we’ll put a few of ya together. Just come on in…. Those foreign eejits in the EU won’t let us give you a passport… but we’ll get around that.. they won’t even know you’re here” (wink)
http://www.independent.ie/business/irish/new-investor-visa-waiver-will-cost-less-than-euro1m-2982560.html
I know, let’s set up a quango and call it the Foreign Investment Jobs Programme.
@WSTT goes without saying never occurred to anyone to include property investment in this.
@JG, Unfortunately not… It’s a dirty phrase. The elephant in the room. Our politicians fail to realise that property values are at the heart of a thriving economy. Wonder when the penny will drop?
@WSTT offshore visa driven investment into property,can’t get their heads around it.Better to tinker with small time solutions,ehm capital gains tax only apply to GAINS,stamp duty is transaction driven,what happens when you have neither.
My elderly parents, who are in receipt of both Contributory Old Age Pensions and Occupational Pensions, have an accountant make annual returns on their behalf every year also got two separate letters from Revenue. I know that both are fully disclosed on their pensions as I request annual statements from the Department of Social Protection here:
https://www.welfare.ie/EN/Secure/Pages/OnlineStatementRequest.aspx
Of course pensioners are required to pay their taxes but the way PRSI pensioners are being treated reminds me a bit of the Heavy Gang tactics of the 1970’s Coalition.
@ CC The Revenue seem to be on a hiding to nothing here. If they had not sent out letters then advising of their actions, they would have been blamed for acting without informing people. Sending out letters was the correct action.
In cases such as those of your parents where an agent was involved, perhaps the letters should have gone to the agent as his/her details would be on the Revenue record for your parents.
The issuance of these letters might also jog the memories of some pensioners to declare various other sources of income not provided to date, in particular foreign pensions.
Declan Rigney, the Principal Officer from the Revenue’s Planning Department was on the radio again this morning and I felt that he explained the issues very well, once again.
The real issue is the historical failure of Dept. of Social Protection to agree to the operation of PAYE on these pensions.
@Niall My parents seem to be getting a hiding from Revenue for nothing.
My parents should have not got letters because they have a balancing statement from Revenue for 2010 which said they have no extra tax to pay in regard to their income, including their pensions which have been fully disclosed. What has changed for 2011? Have their pensions gone up in 2011? Is it because they pay PAYE on their occupational pensions? Surely then Revenue should be able to say exactly how much more has to be paid if this is the case and not be treating them as non compliant taxpayers which seems to be the reason for these letters.
Jogging the memory of those with out of state pensions is another matter entirely.
CC +1
Niall – you seem to be defending the indefensible. Explaining the issues is fine. Sending out threatening letters to taxpayers that are fully tax compliant is not acceptable.
@WSTT high net worth individuals in South Korea,like diversification.
They live next door to the equivalent of the Russian Bear,fantastic people to do business with,long term investors.Tweak the visa programme to include income producing real estate,it’s a very stable long term capital source.
Had a lot of success with “off shore” visa driven investors,US has similar one,Canada also,Vancouver was market driven by the exodus of capital pre reunification of HK.They stayed,but Ireland should be open,welcoming to any source of capital,throw in a visa,quite fertile hunting grounds for you regarding capital.
@JG, I couldn’t agree more John. Thought of going into the EB-5 visa area by developing a regional center in the USA myself, but found that it was like dealing with NAMA only more political. Still it works – for the moment. I know some very successful operators in the field. Just fed up with political manipulation of markets – I no longer trust it and it always ends in disaster.
Difference i Ireland is that anything to do with property is now a “no-go” area for banks or investors (they need banking too). Too dirty a word. It’s up there with priests, paedophilia, politicians, developers, bankers….. Like I said, the range isn’t free any more. No room for cowboys. Time to move on.
Leave the place to those who want to legislate on the shape of a banana.
@WSTT between you and me,had lovely absolutely fabulous time exiting via a similar route,did lots and lots of business with off shore visa driven investors.Actually,in DC next week,finalizing something.
But it’s an awful shame that some brillant amazing developers are getting chased out of Ireland.Terrific,opportunity to attract inward investors.
It is actually quite straightforward,just need few introductions,connections seriously honorable people,great to do business with.You appear a little despondent recently,as Corrigan stated in Indo using a rather bizarre sporting metaphor,was he aiming to be hip and cool down with it,one of the “players”.
You need a “game changer” so be it foreign inward visa driven investment into income producing RE.
Corrigan is x AIB was Bruder not there at same time he’s with Treasury these days,small world huh.
“Managing Director, Treasury Holdings Ireland
John Bruder is Managing Director of Treasury Holdings Ireland. He has over 30 years experience in property and investment management and was previously Head of Property with AIB Investment Managers Ltd.”
Sorry NWL,could not resist they worked together,apparently still do.
If tax is due then it should be paid. The state pension + private pension and taxes isn’t something I had thought about until this hit the headlines. If you consider the state pension as the lower ranking salary (i.e. the portion of income at the marginal rate), then people with reasonable private pensions are getting very little in return for many years prsi payments.
What does strike me is that the civil service seem to be finding and implementing measures that disproportionately effect the private sector. For example; las year’s raid on pension funds and now this issue.
@ AM Hold on for a minute! The actuarial value of the OAP is considerably greater than the PRSI contributions allocated to funding it. It is a steal for the payments made.
Also administration of the Social Insurance system is a tiny fraction of the charges taken by the private sector
@ Niall We must also differentiate between Contributory and Non-Contributory Pensions. If Contributory Pensions are a steal then how would you categorise Non-Contributory Pensions?
@AM Many Civil Servants are not entitled to the Contributory Old Age Pension and depend solely on an Occupational Pension that is often not much more than the Non-Contributory Pension.
@ Niall,
I’m specifying those who would receive a state pension on top of a privately funded pension. If you’re paying the highest marginal rate, the state pension nets to about 6k. Funding this over a working life would be about 180 per month. Between employer and employee contributions, it doesn’t seem like a steal.
AM – All pensions are taxable though I accept that tax relief is not given on SW contributions – If you accept that the actuarial value of a SW pension is around €250,000, far more if you have an adult dependent, then I think you will find it is excellent value.
There are still two further groups of pensioners to be pursued – those in receipt of US & UK Social Security pensions. Both of these are taxable in the State, if the pensioner is resident here.
Time for the Revenue to get after these groups too – cothrom na féinne and all that. Equality of Treatment as the Revenue’s Customer Charter would say.
C.C. The average Civil Service pension is around €24,000, which is not substantially greater than a contributory OAP plus adult dependent.
@ CC Non contributory pensions are not paid from Social Insurance, they are paid from taxation as a form of Social Assistance. The number of non contributory pensioners is in decline and many of the claimants are historical from a time when only certain classes of workers were insurable and in particular the Self employed were not.
Most current claimants were self employed, particularly farmers. They of course had transfered their assets, leaving them with no means and therefore entitled to the non contrib. pension. Child Benefit also comes from the Social Assistance kitty rather than the Social Insurance Fund.
You are completely correct regarding Civil Servants. All bar “Industrial Civil Servants” were not insurable prior to 6th April 1995. The position within many Semi State bodies is similar. Public Servants (Class B & D) only became covered for widow’s pension slightly over 40 years ago and if I remember correctly there was an opt out. This has left many very old Public Service widows on very small CS survivor pensions.
Since 1995, the Social Insurance Fund has received a huge subsidy from the Public Sector contributions, while little or nothing was being drawn down by these workers. Since 1997, FF, particularly under McCreevey cut contribution levels and raided the fund leaving it in a huge mess. However that is a different story