ANALYSIS:The spectacle of judges fretting about tax on their pensions has irked the Government parties
THE DISCLOSURE that Chief Justice John Murray availed of a routine meeting with Taoiseach Enda Kenny last week to voice concerns about the taxation of judges’ pensions has raised the hackles of Fine Gael and Labour TDs and reopened the controversy about the pay and pensions of the judiciary.
They are keenly aware that the last government suffered a serious blow to the credibility of its austerity programme through the way in which judges, who are among the highest-paid public servants in the land, were exempted from pay cuts and the pension levy that applied to the rest of the public service.
The exemption came about because of advice from the former attorney general Paul Gallagher that any attempt to cut the pay of judges could be unconstitutional in the light of the provision of the Constitution which states: “The remuneration of a judge shall not be reduced during his continuance in office.”
However, the then opposition and current Government parties argued that this provision should not be used to exempt judges from a general public service pay cut across all grades and professions, particularly given the fact that judges benefited from the large increases in public service pay over the previous decade.
In the election campaign, both Fine Gael and Labour pledged to take action to reverse the decision to exempt judges from pay cuts. The programme for government contains a specific commitment to hold a referendum to amend the Constitution so that judges’ pay can be cut as part of any general public service reduction.
Given that background, the news that the Chief Justice had raised the issue of judicial pensions with the Taoiseach provoked a very negative reaction on the Government back benches.
“If Enda gives in to any special pleading on behalf of this pampered, privileged elite, we are doomed as a government because we won’t have a leg to stand on when we ask ordinary hard-pressed taxpayers to take more pain in the years ahead,” said one senior Fine Gael TD.
Given that the Government parties used the issue of the judges’ exemption from the pay cuts as a stick with which to beat the previous government, the Coalition is in no mood to take a hit over the pensions paid to the same group.
The negative public reaction to the exemption of judges from the pay cuts prompted the Chief Justice to introduce a voluntary contribution arrangement with the chair of the Revenue Commissioners, Josephine Feehily. A total of 126 out of the country’s 144 judges made some voluntary contribution last year, with the amount collected coming to €1.254 million.
However, the fact that the judiciary, whose salaries range from €147,961 paid to a District Court Judge to €295,916 paid to the Chief Justice, are not obliged to pay on the same basis as everybody else is something that has continued to rankle with politicians and the public.
The financial implications of the new pension arrangements are probably far more serious for the judges but the loss of goodwill that has developed from the controversy over pay cuts will not help their case now.
The issue of the tax treatment of judges’ pensions is a highly complex one that arises from changes in the December budget for high-earners who retire with pension pots worth €2.3 million or more.
One of the problems about the generous public service pension provisions in this country is that there is no actual pension fund to pay them. Entitlements and contribution rates vary across the public service, but the pensions are paid out of general taxation. This means that notional calculations have to be made about the kind of fund that would be needed to pay the large public services pensions that go to people like judges, top civil servants and politicians.
The situation of individual judges will also depend on whether they built up individual pension pots when they practised at the bar as these will be added into the mix for tax purposes on retirement.
Judges of the Circuit, High and Supreme Courts are entitled to retire on a full pension after just 15 years of service with a retirement age of 70. Their pension contributions amount to just 4 per cent of annual salary.
District Court judges have to serve 20 years before being entitled to a full pension and they can retire at 65. Their pension contribution is 3 per cent of salary.
On retirement, the standard public service pension arrangements provide that judges get a lump sum of 1½ times salary and an annual pension of half a judge’s salary for the rest of their life. For instance on retirement after 15 years, a High Court judge will get a lump sum of €364,620 and an annual pension of €121,540.
Under the terms of the budget, the element of the lump sum over €200,000 will now be eligible for tax. However, that is not the main problem. It is the calculation that is now going to be made about the value of the notional pension pot and whether it exceeds the tax-free cut-off point of €2.3 million that lies at the heart of the problem. Some judges could be exposed to large tax liabilities on notional pension pots.
This is not a problem that has generated much sympathy in the political world. Among the TDs, Senators and political activists gathered in Leinster House for the Seanad election count yesterday, not only was there no sympathy for the judges but there was considerable anger about the manner in which the issue had been raised with the Taoiseach.
“Why should judges be looking for special treatment under the tax laws that apply to everybody else?” was the common refrain.
Whatever the rights and wrongs of the new pension arrangements, the Government is in no mood to do a special deal for the judges.
Stephen Collins is Political Editor