Q&A

Working out the income levy system

QI am on a pension from my former employer, plus the State pension. My wife has the State pension plus a part-time job(two days a week). Our combined total income (gross) is €103,000. Will I pay 1 per cent on €100,000 and 2 per cent on €3,000?

Mr J.H., e-mail

AThe income levy system, which comes into force on January 1st, is gradated. As such, you will be liable to pay €1 per cent on the first €100,000 of your income and 2 per cent above that - but only on the amount in excess of the €100,000 threshold.

In your case, assuming you can claim no exemptions, this means you would pay the 2 per cent rate only on the €3,000 of income above the €100,000 level.

However, according to the briefing document published by the Revenue Commissioners, you will be entitled to claim certain exemptions. In the first place, income from social welfare payments - including the State pension - is exempt from the calculation of gross income for the purposes of the income levy. By itself, that will bring the income of yourself and your wife below the €100,000 threshold and thus fully into the 1 per cent zone.

Another exemption, according to Revenue, is on income from bank interest on which Deposit Interest Retention Tax. People on a full medical card will also be exempt. However, remember that the medical card regime is also changing for people over the age of 70 and only those people meeting the new eligibility requirements will be able to claim this exemption.

In its document - Income Levy: Notes for Guidance and Implementation Arrangements for Employers - the Revenue lists a range of other income that is exempt from the income levy including interest on savings certificates and money earned under the rent-a-room relief.

Medical card eligibility

QIn relation to eligibility by people over 70 for medical cards under the new rules, I would like to know whether interest on post office products - savings bonds and savings certificates - is included in calculations of gross income?

Mr P.H., Cork

AWhile post office savings products are generally exempt from income tax, that does not mean that they do not come into consideration in other regards. In this case, the rules for the over-70 medical card eligibility state that gross income from all sources is taken into account - including income from savings over certain thresholds.

This is different from the rules in relation to the impending income levy (outlined above) which specifically exclude income from savings certificates. That is effectively down to the fact that two separate agencies are setting the rules for each programme - Revenue in the case of the income levy and the Department of Health and Children on the medical card scheme.

As a result, income from An Post products will be taken into account, alongside bank interest and stock dividends. However, if your An Post savings together with other savings and investment you hold are lower than the threshold, it will not impact on your application for a medical card. To recap, savings of less than the first €36,000 for a single person and €72,000 for a couple are not taken into account in the means test for medical card eligibility.

Defined benefit pension

QI am in receipt of a pension payable monthly through Mercer for the past four years or so. It is defined benefit. To the best of my knowledge, an annuity was not purchased and I am paid from the "pot".

I do not have any contact with Mercer and I am wondering if, in the present economic climate, my pension is safe? Maybe you could throw some light on the matter.

Mr R.B., e-mail

AI always assumed that defined benefit penson schemes took out an annuity to fund their members' retirement when the time came. However, I gather from speaking to a number of people in the industry yesterday that this is not generally the case, although it does sometimes happen with smaller companies. Larger firms, as you say, pay from the pot.

On the more important point, at least from your point of view, you are in the strongest position in terms of priorities from the fund. In a worst-case scenario, first claim on a pension fund being wound up is money paid in by way of additional voluntary contributions (AVCs). This is not generally a major sum.

Next comes people already in receipt of pensions - ie those in your position.

However, the important point to bear in mind is that this only becomes an issue if the fund collapses - and that is really only possible where your former employer, the fund sponsor, become insolvent.

For that to happen, they would effectively have to go out of business. Of course, it's not impossible in these straitened times but those companies with defined benefit pension schemes such as the one you enjoy tend to be the larger, more established players, and hopefully more secure.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.