Q & A

Old Age Pension

I am in receipt of a contributory old age pension and also a dependant's allowance in respect of my wife. Some seven or eight years ago, I transferred all my shares - then worth between £60,000 and £70,000 (€76,184 and €88,882) but now valued at around £140,000 - into the joint names of myself and my wife. Does the present value of the shares affect my dependant's allowance and should I transfer the shares back into my sole name? The actual gross income on half of the shareholding would not be near £60 a week.

In a related query should I, from a capital gains point of view, transfer the shares into my own name anyway, as I am quite some years older than my wife? I understand that, as matters stand, in the event of my death, any accruing capital gains would remain with the shares whereas if they were in my sole name, the capital gain would die with me. Mr P., email

The value of shares certainly affects your entitlement to dependant allowance. The Department of Social, Community and Family Affairs defines a qualified adult (formerly known as an adult dependant) as a spouse or someone living with the social welfare recipient as husband/wife whom the welfare recipient is wholly or mainly supporting.

If the spouse or partner is receiving a welfare payment in their own right, they may not qualify unless that payment is in respect of disablement pension, supplementary welfare allowance or child benefit. They will also be excluded if they are on strike, taking part in a full-time FAS non-craft training course or in receipt of an infectious diseases maintenance allowance, although do not ask me why the last item is mentioned specifically in the Department's literature.

More importantly, they will not qualify if their income exceeds £60 a week. This is the provision which is of greatest concern to you.

When considering the question of income, the Department takes into account earnings from employment or self-employment, occupational pensions, income from property and, yes, savings and investments.

As you say, the income from your wife's portion of the shareholding would not amount to the equivalent of £60 a week gross, less superannuation. Unfortunately, the Department has its own formula for assessing how much income such savings and investments - or indeed property - yield. . . and it has nothing to do with dividends.

It is quite straightforward. The first £2,000 of the capital value is disregarded; the next £20,000 is deemed to yield at 7.5 per cent; and the balance is assessed at 15 per cent. In your case, assuming your wife's portion of the shareholding is £70,000 at current values, the yearly value under the Department's formula would be £8,700 - zero on the first £2,000, £1,500 on the next £20,000 assessed on the basis of a 7.5 per cent yield and £7,200 on the balance of £48,000 under the 15 per cent assessment provision.

Dividing this sum by 52 gives a weekly amount of almost £167.31 well in excess of the £60 threshold. In certain cases, where the spouse's income exceeds £60 gross a curtailed qualified adult's allowance continues to be paid on a sliding scale. However, this peters out entirely once that income exceeds £390 a week gross, well below the income the Department deems your wife to have from this shareholding.

In the circumstances, it would seem sensible to transfer the shares back into your own name. Despite the recent restrictions on the transfer of the capital gains allowance between married couples, you are still allowed to dispose of shares to each other without being subject to capital gains.

Certainly, the £1,000 capital gains tax allowance your wife receives in respect of her shareholding is outweighed by the £2,730 you would receive in qualified adult allowance on her behalf if she is aged under 66. Beyond that, the allowance is worth £2,958.80 although obviously this sum will be considered from the point of view of your income tax.

Turning to the second issue you raise, you are quite right in saying that capital gains does not pass on from the owner of the asset to the inheritors upon death. Of course, there is no taxable gain arising in any case on assets bequeathed to a spouse, but the provision whereby the capital gain from the time you bought the shares until your death is discounted upon your death could be important should you pass the shares on to another relative or someone else entirely. Naturally, the issue of capital acquisitions tax, colloquially known as inheritance tax, would still arise on the capital sum of the stock transferred. The capital value of the shareholding for the purposes both of capital acquisitions tax and for calculating the capital gain on any future sale of the shares by your inheritor would be assessed on the basis of the date of their transfer.

Although not relevant in your instance, it is worth noting that someone in receipt of a welfare payment who is supporting a divorced or separated spouse may be entitled to a qualified adult allowance if the spouse is receiving a minimum of £41.20 a week from you towards maintenance, is not living with anyone else as husband/wife and whose weekly earnings do not exceed £60 a week.

Occupational Pensions

Having read your recent column on the subject of occupational pensions and the state pension deduction, I enclose information on how the deduction is calculated at 1.5 times the State pension. Would it be possible to pass this information on to your correspondent and anyone else who might be interested? Mr D.C., email

The issue of how an occupational pension scheme deducted 1.5 times the single social welfare contributory pension sum from the pension payable to Mr E.D. (Q&A, January 8th) was one that had me stumped at the time and I am grateful to Irish Association of Pension Funds for sending me the formula by which this deduction arises.

The process by which occupational pension funds - or, for that matter, private pensions schemes - take into account State pension benefits when calculating the pensions payable is called integration. Essentially it ensures that the pensioner draws down the fullest pension available under their pension scheme at the lowest cost. Mr E.D earned £22,500 basic at the moment and this is the figure we shall use for the purposes of the illustration. His scheme also operates under the 40 sixtieths rule, where the employee can attain a pension of up to two-thirds of final salary after 40 years service.

There are two ways integration can be worked out although the formulae are pretty close to one another. In the first instance, the formula is: (salary x service/60) - (state pension x service/40). Under such a scheme, assuming Mr E.D.'s £22,500 was his final salary and that he had the full 40 years' service under his belt, you get (£22,500 x 40/60) (£4,316 x 40/40) = £10,684. That means that the occupational pension would pay £10,684 a year, which, when added to the £4,316 currently payable under the single person's contributory State pension, gives you £15,000 or two-thirds of final salary.

The second formula is the one which applies in Mr E.D.'s case and it arrives at the same result. It operates as follows: (salary - 1.5 x state pension) x service/60. Using the same figures as before, you get: (£22,500 - 1.5 x 4,316) x 40/60 = £10,684. Again, you add the £4,316 to that sum to yield a total of £15,000 or two-thirds of final income.

The examples show that the 1.5 referred to is simply a mathematical device to ensure that the final pension, including the State contribution equal the maximum available under the scheme at the cheapest cost. It is still, of course, possible in law to receive an occupational pension of two-thirds of final salary plus the State pension, in this case giving a total of £19,316.

However, this would mean a substantial increase in the payments of the employee, a cost which would rise depending upon their current age and time in the occupational scheme before retirement.

Please send your queries to; Dominic Coyle; Q&A, The Irish Times, Fleet St, Dublin 2 or email to dcoyle@irish-times.ie.