PERSONAL FINANCE:Your queries answered

Q

I have a public service pension of approximately €47,000 and I am trying to understand the implications of the Budget for me. Will the reduction be: (a) 9 per cent of the total €47,000 (ie, €4,230), or; (b) 0 per cent on the first €12,000, 6 per cent on the next €12,000, plus 9 per cent on the remaining €23,000 (ie, a total of €2,790)?

- Mr S McC, e-mail

A

Pensions was an area with some of the most wide-ranging adjustment in last week’s Budget. There were some significant changes for people investing in private sector pensions and for public service pensioners like yourself.

The new rules work in a gradated fashion. That means you pay nothing on any pension income up to €12,000. You will pay 6 per cent on income between €12,001 and €24,000, but only on the income in this bracket. This is a liability of €720. On anything above €24,000, you will pay 9 per cent. For you, this means a further liability of €2,070.

It is in other words, the (b) option. This means you will have a total liability of €2,790, which is 5.9 per cent of your €47,000 pension. Of course, you will also have to take account of other budgetary changes such as the universal service charge.

Will the universal service charge apply to me?

Q

I am confused by the new universal social charge. Will it apply to me? I am 84 years-old and was not liable for the health levy which, I understand, this replaces? If it turns out that I am liable, what rate will I pay? If my income is over the €16,000 figure, do I pay the 7 per cent on all income?

- Mr OP, e-mail

A

There’s going to be a lot of confusion about this Universal Social Charge. As you say, it does replace the health levy but it also replaces the income levy. While these were temporary, there is nothing to suggest the universal service charge will be. Also, though called a “social charge”, it is in fact a tax rather than something conferring a benefit like, say, PRSI.

It will be payable on all your income as long as that income is more than €4,004 per annum.

However, all Department of Social Protection payments – including the State pension, are exempt, as is income on which DIRT has already been levied.

There are some other specific reliefs – such as rent-a-room relief income – but they do not apply to you.

The fact that you were exempt from the health levy does not exempt you from this charge, nor does possession of a full medical card.

Even if your non-exempt income is below the €4,004 threshold, the charge will be deducted and will have to be claimed back from Revenue at year end.

Lower rates do apply for older people – those who are over the age of 70.

As long as your annual income is higher than €4,004, you will pay 2 per cent on everything from €0 to €10,036. Above this – but only on that portion of your income above that threshold – you will pay 4 per cent.

If you were under 70, you would pay an additional 7 per cent rate on that portion of your income above the €16,016.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into. Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com