Latest revision date: 23 July Pension-related deduction from the remuneration of public servants. Frequently Asked Questions

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1 Latest revision date: 23 July 2009 Pension-related deduction from the remuneration of public servants Frequently Asked Questions Updated to reflect revised rates/bands effective 1 May 2009

2 Frequently Asked Questions Section A: Basic information Section B: Amendments taking effect in May 2009 Section C: Section D: Section E: Who is covered by the Deduction? What remuneration is covered by the Deduction? How is the Deduction made? These frequently asked questions relate to the pension-related deduction from the remuneration of public servants. They should be read alongside or in conjunction with the Financial Emergency Measures in the Public Interest Act The pension-related deduction was introduced with effect from 1 March 2009 via the Financial Emergency Measures in the Public Interest Act 2009, which was originally enacted by the Oireachtas in February The Act was amended in Part 4 of the Social Welfare and Pensions Act This amendment introduced revised rates and bands of deduction, effective from 1 May This document is not a legal interpretation of the Act and does not purport to deal with every query that may arise. 2

3 Section A - Basic information 1. What is the purpose of the Financial Emergency Measures in the Public Interest Act 2009? The purpose of this Act is to introduce a number of financial emergency measures in the public interest. These are the making of a new deduction from the remuneration of public servants who are members of a public service pension scheme or who have an analogous arrangement; provisions to allow public bodies to reduce the professional fees paid by them to external service providers; changes in the early childcare supplement and in payments under the Farm Waste Management Scheme. The Act was introduced in the context of the priority to be given to the stabilisation of the public finances. The Act provides that savings accruing from these measures will be remitted to the benefit of the Exchequer. 2. To whom do I go if I have queries about the pensionrelated deduction and whether or not it applies to me? Queries in relation to an individual s liability for the pensionrelated deduction and any other questions in this regard should be addressed to the employer. The employer should liaise with the parent Department if there are any matters requiring clarification in respect of the deduction. 3. From what date will the deductions be made? Under section 2 of the Act, the deductions will be made with effect from 1 March 2009 in respect of remuneration paid to a person in respect of service given as a public servant on or after that date. 3

4 Section B Amendments taking effect in May What changes did the April Supplementary Budget make to the pension-related deduction? The Financial Emergency Measures in the Public Interest Act 2009 was amended by the Social Welfare and Pensions Act 2009 to give effect to the Government s decision to amend with effect from 1 May 2009: (a) the rates of the public service pension-related deduction (PRD) and (b) the bands of remuneration to which it applies. The original deduction rates, which remain applicable from 1 March to 30 April 2009, are as follows: First 15,000 3% Between 15,000 and 20,000 6% Above 20,000 10% In order to ameliorate the impact of the deduction on lower paid public servants (partially offset by an increased rate on the earnings band above 60,000), new rates and bands will apply with effect from 1 May 2009 as follows: First 15,000 of earnings exempt Between 15,000 and 20,000 5% Between 20,000 and 60,000 10% Above 60, % The new higher rate of 10.5% on earnings above 60,000, in conjunction with the other changes, means that persons with annual income exceeding 160,000 will, in a full-year, pay a higher amount of pension-related deduction. 5. How will the original and revised rates be applied in practice? The legislation, as amended, provides that, with effect from 1 May 2009, the original and revised bands are pro-rated on a weekly basis over the 10-month period for which they apply in 2009 in the ratio 8:36 respectively, i.e. 8 weeks for 1 March 30 April and 36 weeks for 1 May 31 December

5 This is being done by setting out four tables (two of which, B and C, are based on the ratio referred to immediately above): Table A shows the rates and bands put in place by the original Act. These rates and bands apply to public servants who were liable to the deduction at the original rates, who quit their jobs before 1 May 2009 and who do not re-enter the public service in Table B shows the rates and bands for the period 1 March to 30 April 2009 which apply in respect of earnings during that period of persons whose service extends beyond the latter date, or who, after quitting their job, are re-employed in the public service at any time between 1 May and 31 December The bands in Table B are calculated as 8/44ths of those in Table A to pro-rate them for the eight-week period involved, while the rates are the same as those in Table A. Earnings in respect of the subsequent 2009 service of persons to whom Table B applies (i.e. earnings in the period 1 May - 1 December) are subject to the rates and bands at Table C. Table C is based on the new (amended) rates, with the new bands set at 36/44ths of those applying for a full year (see Table D). Table C also applies in 2009 to the earnings of new entrant public servants hired from 1 May onwards. Finally Table D shows the new rates and bands applying for a full year from 2010 onwards. TABLE A: 1 March 30 April 2009 if leaves public service before 1 May 2009 Amount of Remuneration Rate of deduction Up to 15,000 3 per cent Any excess over 15,000 but not over 20,000 Any amount over 20,000 6 per cent 10 per cent 5

6 TABLE B: 1 March 30 April 2009 if remains in public service on or after 1 May 2009 Amount of Remuneration Rate of deduction Up to 2, per cent Any excess over 2, but not over 3, Any amount over 3, per cent 10 per cent TABLE C: 1 May 31 December 2009 Amount of Remuneration Rate of deduction Up to 12, Exempt Any excess over 12, but not over 16, per cent Any excess over 16, but not over 49, per cent Any amount over 49, per cent TABLE D: 2010 and each full year thereafter Amount of remuneration Rate of deduction Up to 15,000 Exempt Any excess over 15,000 but not over 20,000 5 per cent Any excess over 20,000 but not over 60, per cent Any amount over 60, per cent 6

7 6. What difference will the amended rates and bands make to me? If you are a public servant paying the deduction, it will reduce the amount you pay unless you earn more than 160,000 a year. 7. How much less will I pay in 2009 and in a full year? Ignoring the effect of tax relief, in 2009, for someone paid between 20,000 and 60,000 a year the amended rates/bands will mean a gross reduction in the pensionrelated deduction in the region of 400. In a full year, such a person will pay 500 less in gross terms than if the original bands and rates applied. For someone paid less than 20,000 or more than 60,000 a year the gross reduction in the pension-related deduction in 2009 arising from the amended rates/bands will be less than this; the reduction in the PRD declines as pay increases up to 160,000. Persons paid more than 160,000 in the March-December period of 2009 or in a full year thereafter will pay a higher deduction than they would have under the previous regime. [A calculator is available on the Department of Finance website: 8. What is the practical significance of section 2, subsection (3A)? In practice it is not especially significant, because there are not expected to be many cases in which the special use of Table A under this part of the legislation will actually arise. The purpose of the subsection is to ensure that most persons who quit public service jobs during 2009 on or after 1 May do not pay more, as a proportion of pay, than a person who only worked during the March/April period. 9. How will the deduction be calculated for a person who leaves a public service job between 1 May and 31 7

8 December 2009? Would subsection 3A apply and, if so, what would that mean? If the person began work before or during March-April 2009, the deduction will generally be based on Table B for the March-April 2009 period and Table C for the May-December 2009 period. If however the application of Table A to all of that person s leviable earnings in 2009 would yield a lower deduction amount, then, as provided for in section 2, subsection 3A of the Act, the deduction calculation should in most cases be based on Table A. Note however that this special recourse to Table A is not allowed where the person s leviable earnings in the March-December period exceed 160,000. If on the other hand the person began work on or after 1 May 2009, and did not work in the public service in the period March-April 2009, the deduction in 2009 will be levied at the Table C rates, i.e. effectively at the new full-year rates. 8

9 Section C Who is covered by the Deduction? 10. Who is subject to the pension-related deduction under section 2 of the Act? The criteria for being covered by the pension-related deduction are that one is a public servant (defined in section 1 of the Act) and a) is a member of a public service pension scheme (defined in section 1 of the Act) or b) is entitled to a benefit under such a scheme or c) receives a payment in lieu of membership in such a scheme. In outline terms, the deduction applies to public servants who are employed by or hold an office or position in a public service body and are members of a public service pension scheme. 11. Am I a public servant? If you are employed by or hold an office or a position in a public service body, (or if you are a member of the Oireachtas, European Parliament or a Local Authority) then you are considered to be a public servant for the purposes of the Act. 12. What are public service bodies? The Civil Service, the Gardaí, the Permanent Defence Force, a local authority, the Health Service Executive, the Central Bank and Financial Services Authority of Ireland, a vocational education committee are all public service bodies. In addition any statutory body or company or body corporate (or subsidiary) established and financed wholly or partly by a Minister (whether by share issue or guaranteed loan or money provided) in respect of which a public service pension scheme exists or applies or may be made is a public service body. Any body funded by the Oireachtas or by the Central Fund and in respect of which a public service pension scheme 9

10 exists or applies or may be made also is defined as a public service body. 13. What is a public service pension scheme? A public service pension scheme means an occupational pension scheme or pension arrangement, by whatever name called, for any part of the public service which (a) is provided for under (i) the Superannuation Acts 1834 to 1963, or (ii) any other enactment or administrative measure for the like purpose and to the like effect as those Acts, or (b) is made by a relevant Minister or has been approved or requires the approval or consent, however expressed, of either or both a relevant Minister and the Minister for Finance. 14. From what date will the deductions be made? Under section 2 of the Act, the deductions will be made with effect from 1 March 2009 in respect of remuneration paid to a person in respect of service given as a public servant on or after that date. 15. Are any public service bodies exempt? The following bodies, essentially the commercial state sector, are included as a Schedule to the Act and are exempted from the terms of section 2: Any body corporate established by Act of Parliament before 6 December 1922 that, upon its establishment, was of a commercial character Dublin Airport Authority, public limited company Cork Airport Authority, public limited company Shannon Airport Authority, public limited company Bord Gáis Éireann Bord na gcon Bord na Móna Córas Iompair Éireann Coillte Teoranta 10

11 Electricity Supply Board Eirgrid A harbour authority within the meaning of the Harbours Act 1946 or company to which section 7 of the Harbours Act 1996 relates Horse Racing Ireland Irish National Stud Company Limited Irish Aviation Authority An Post An Post National Lottery Company Radio Teilifís Éireann Teilifís na Gaeilge Railway Procurement Agency Voluntary Health Insurance Board A subsidiary of a body to which this Schedule relates, including a subsidiary of any such subsidiary. 16. Is anybody employed by a public service body exempt? The legislation does not exempt individuals or groups (save for the Judiciary and the President due to provisions in the Constitution), and a public servant would, prima facie, be subject to the deduction. A public servant who is not a member of a public service pension scheme, as defined in the legislation, or entitled to a benefit under a scheme or in receipt of a payment in lieu of membership of such a scheme would not be subject to the deduction. It is not anticipated that there will be many public servants falling into this category and the parent Department should be consulted if there is a doubt. 17. I already have a public service pension based on 25 years service in the [Army, education, health sector] and I'm working for a public service body on a contract which says nothing about a pension - am I still liable? If it is a contract of service (i.e. the normal employment arrangement) or an appointment to a position or office, yes, you are liable in respect of your remuneration as a public servant but not in respect of the pension you receive. If it is a contract for services, the deduction provided for in section 11

12 2 of the Act does not apply but there are provisions for the reduction of fees in sections 9 and 10 of the Act. Sections 9 and 10 are not covered by these FAQs. 18. I work part-time as a [nurse, technician, teacher, instructor] for a number of different public service employers - what is my liability? - how is it charged? Your liability is against your total remuneration as a public servant, from whatever source. It is charged at the same rates as if you had one employer. Your employers should make contact with each other to ensure the deduction is being made correctly. 19. I have a medical card, will I be subject to the deduction? Holding a medical card is not relevant as to whether or not the deduction is to be made. 20. Not all public service bodies appear in the list in section 1 (Interpretation) of the Act - why is this the case? The Act s definition of public service body includes a body established by statute or a body wholly or partly funded directly or indirectly out of money provided by the Oireachtas. Amongst other bodies, this part of the definition covers schools, universities and non-commercial regulatory bodies. 21. Are any public servants exempt from the terms of section 2 of the Act? The President of Ireland and members of the Judiciary are not subject to the deduction, due to provisions in the Constitution. 22. I am on a short-term contract of service working for a public service body, am I included? The length of a contract is not relevant as to whether or not a deduction is to be made. In general most contract staff in the public service are now eligible for pension scheme membership. In addition, a person who is on a contract and, 12

13 for example, is in receipt of a payment in lieu of membership of a pension scheme, would be liable for the deduction from 1 March or commencement of the employment if later. In terms of assessing whether there is a payment in lieu of membership of a scheme etc, this would have to be examined by whoever approved the contract terms. 23. What happens if I leave before completing the minimum period for accruing a pension benefit (or without receiving a payment in lieu or preserved payment in lieu)? For example if I leave before completing two years and without a preserved benefit. Do I receive a refund? If the person to whom the deduction has applied leaves (a) without a benefit or preserved benefit, or (b) without a payment in lieu or preserved payment in lieu, and (c) without transferring the service, then a refund is provided. This means in effect that a person who receives any payment in lieu during the employment or on leaving will not be entitled to a refund. 24. What about if I later rejoin a public service body? If you later are employed in a public service body, the refund previously received, plus interest, would have to be paid back to the earlier public service body before that service could be transferred and reckoned for public service superannuation purposes. 25. Is the refund treated for tax purposes like a refund of pension contributions? No, the Revenue Commissioners have advised that where a refund is due the employer should ensure that the employee is placed in the same cash position as if the pension-related deduction had not been deducted from him or her in the first place. The refund is in fact remuneration which has not previously been subject to specific relevant statutory stoppages (tax, PRSI and Health Levy) and must now be made subject to those stoppages where warranted. In practical terms the easiest way to do this may be to treat the refund in like manner to the payment of arrears of pay, which payroll systems already handle. Note that under PAYE 13

14 Regulation 19A an employer who is making a payment of arrears of pay to a ceased employee for whom they hold a tax credit certificate is obliged to deduct tax as if the payment was made on the date the employee ceased to be employed. For the avoidance of doubt, the refund will not itself be liable to the pension-related deduction (or to the income levy). 26. I pay a contribution towards my public service pension scheme already? Am I liable to the deduction? Yes, you are. The deduction applies to all public servants as defined in the Act, not only those in non-contributory pension schemes. 27. I am in a third-level institution scheme which has a formal pension fund; does the deduction apply to me? The deduction applies to all public servants as defined in the Act, including those in funded schemes. However, the deduction must not be paid into the scheme fund, but remitted to the benefit of the Exchequer as provided by section 4 of the Act. 28. Does the Act apply to voluntary and other bodies that are funded in whole or in part from funds voted by the Oireachtas? Yes, if, in respect of that body, a public service pension scheme exists or applies or may be made. However, if in respect of that body a public service pension scheme does not exist (or apply or may not be made), then that body does not come within the definition of public service body for the purposes of this Act and its employees are not, therefore, public servants for the purposes of this Act. In the case of any doubt the parent Department should be consulted. 29. Is the deduction payable by someone who is not in the pension scheme, e.g. someone on a short fixed-term or fixed-purpose contract? Being on contract, of whatever length, is not relevant, as most public service schemes accept short-term contract staff as members. Even for those who are not scheme members, 14

15 a person who is on a contract and, for example, is in receipt of a payment in lieu of membership of a pension scheme, would be liable for the deduction from 1 March 2009 or commencement of the employment if later. In terms of assessing whether there is a payment in lieu of membership of a scheme etc, this would have to be examined by whoever approved the contract terms. 30. In some areas of the public service, on the introduction of a Main public service pension scheme, existing employees got a one-off option to join or remain outside the scheme but with a gratuity or other payment if they opted not to join the pension scheme. Will those who opted to remain outside the scheme be liable for the deduction? If yes, will these people now be given a further option to join the scheme? In such circumstances, persons who opted out are public servants within the terms of the Act and are in receipt of or eligible for a payment in lieu of membership of a pension scheme; as such they would be liable to pay the deduction. Under section 7 of the Act, no additional pension benefit is conferred by the deduction and no option to join a scheme arises under the Act. If those who opted out are not in receipt of or eligible for a payment in lieu of membership of a pension scheme then generally they would not be liable to pay the deduction. 31. Does the deduction apply to all contract staff of a Public Service Body? Yes, a person who is on a contract and, for example, is in receipt of any payment in lieu of membership of a pension scheme would be liable for the deduction from 1 March 2009 or commencement of the employment if later. In terms of assessing whether there is a payment in lieu of membership of a scheme etc, this would have to be examined by whoever approved the contract terms. 15

16 32. Will persons who have an entitlement to receive a non pensionable gratuity on retirement but are not in a pension scheme be liable? A person who in receipt of any payment in lieu of membership of a pension scheme would be liable for the deduction and such a gratuity would usually be deemed to be such a payment in lieu. In addition, it should be noted that a public service pension scheme is defined as an occupational pension scheme or pension arrangement, by whatever name called, for any part of the public service which is provided for under any administrative measure for the like purpose and to the like effect as the Superannuation Acts or is made by a Minister or has been approved by a Minister or requires the approval or consent of a Minister. 16

17 Section D - What remuneration is covered by the Act? 33. Is the deduction charged on all income both pensionable and non-pensionable (e.g. acting up allowances)? The deduction is to be calculated by reference to remuneration. Remuneration is defined at section 1 of the Act as emoluments to which Chapter 4 of Part 42 of the Taxes Consolidation Act 1997 applies or is applied and payable by or on behalf of a public service body to a public servant for his or her services as a public servant. This definition includes non-pensionable pay, including overtime, acting-up allowances and benefit-in-kind. 34. Is the deduction to apply on the same basis to Class B, Class D and Class A PRSI contributors? Yes. The social insurance class of the public servant has no bearing on the application of the deduction. 35. I am a public service pensioner who works part-time in the public service. Is all of my income (pay and pension) subject to the deduction? No. Where a pensioner returns to work in the public service, remuneration in respect of that work is subject to the deduction but his or her pension is not. 36. Will persons on secondment and in receipt of a non pensionable top-up salary be liable for the deduction on the top-up? If so how will the second employer calculate the correct levy? The deduction is calculated by reference to remuneration. Remuneration is defined at section 1 of the Act as emoluments to which Chapter 4 of Part 42 of the Taxes Consolidation Act 1997 applies or is applied and payable by or on behalf of a public service body to a public servant for his or her services as a public servant. Therefore basic salary plus the top-up salary will be liable for the deduction. Where there are two or more employers, they should make contact with each other, as they would in the normal run of events to ensure the person being paid is receiving the correct tax credits and so forth. As such, one would expect 17

18 the top-up employment to apply the marginal deduction rate (10.5% or lower as the case may be) to the top-up salary. 37. Are public servants on pension rate of pay subject to the deduction? In general where a person is in receipt of pension rate of pay and the period in question does not reckon as service for the accrual of superannuation, annual leave entitlement, etc, the pension rate of pay is not subject to the deduction. Payment for the period in question would not be considered to be in respect of "services as a public servant", which is part of the definition of "Remuneration" in section 1 of the Act. 38. Will my travel and subsistence payments be affected? No, the deduction is being applied to remuneration (generally, income which could or would be subject to tax) not to travelling and subsistence allowances. 39. Do I get tax relief on the deduction? Yes. The deduction will be treated as an allowable deduction under the Tax Acts and relief will be given at the marginal tax rate. The deduction will be calculated on the person s gross income; other deductions (PAYE, PRSI, health levy, but not income levy) are based on gross income less the pensionrelated deduction and less pension contributions. 40. Does the deduction affect the overall threshold levels for tax relief on pension contributions? No. The deduction does not count towards a person s limit for tax relief on pension contributions. So, for example, a person aged between 40 and 49 can contribute up to 25% of gross income towards pension and get tax relief on those contributions. The deduction will not count towards that 25%. 41. Do I receive any additional pension benefits as a result of this deduction? No. Additional pension benefits do not arise as a result of this deduction. 18

19 Section E - How are the Deductions made? 42. When does the deduction take effect? The original deduction took effect from 1 March 2009, the revised deduction from 1 May Who makes the deduction? Under the terms of the Act, the deduction is the responsibility of the person who authorises the payment (who may not be the employer, e.g. Teachers may be employed by schools but paid by the Department of Education and Science). 44. Who collects the money? How is it returned to the Exchequer? The matter of collection and recovery of the deduction will be dealt with in detail in Regulations which will be made as early as possible. The Regulations will stipulate that the deductions are not to be paid into a pension fund but remitted for the benefit of the Exchequer as provided for in section 4 of the Act. 45. Are the normal pension contributions affected? No. Existing rates of pension contribution are not affected by the pension-related deduction. This includes rates to purchase notional service or to purchase actual (or PCW) service. So the cost of purchasing past service under the PCW Agreement at retirement is unaffected by the pensionrelated deduction. 19