Experts warn of tax blow to private sector pension plans
Banking
IT will not make sense for private-sector workers to contribute to their pensions if proposals made by the Commission on Taxation come into force, according to tax partner with KPMG Conor O'Brien.
The report calls for a higher state support for those with low or no income to encourage them to take out a pension, but recommends cutting back on the tax reliefs for higher-rate taxpayers who pay into their own pension.
Mr O'Brien said the changes proposed would mean it no longer makes sense to make pension contributions for those paying tax at the higher rate.
This was because the rate of tax relief would be lower than the tax imposed when a person draws down their pension.
Other bodies have pointed out that the proposals would leave public-sector workers largely unaffected.
This is because their pensions are largely paid for by the State, rather than by the workers themselves.
Chief executive of the Irish Brokers' Association Ciaran Phelan said everyone was entitled to security in retirement, not just public-sector employees. Mr Phelan criticised the commission report for failing to compare "the huge pension benefits given to the public sector" with the pensions situation in the private sector.
Kevin McLoughlin, head of tax services at Ernst & Young, said yesterday the commission proposals risked triggering a collapse of private pension provision. The proposed changes would mean that for every €100 put into a pension it would cost around €62 for a higher-rate taxpayer, up from around €51 at present.
Retires
Once someone retires they are allowed to earn €20,000 tax free, or €40,000 for a couple. But for amounts after that tax, the income levy and the health levy (for those up to the age of 70) apply. This means the tax paid on the retirement income could be higher than the tax relief given when the money was put in.
Joyce Brennan, of Mercer, said the proposals would mean many private-sector people funding their own pension would decide to stop paying into additional voluntary contributions if they were planning to use such a fund to boost the income from their pensions.
- Charlie Weston
