Last-ditch attempt to avoid company PRSAs' collapse
Published 29/01/2011 | 05:00
PENSION schemes run by more than 17,000 companies could be blown out of the water by changes introduced under the Finance Bill, experts have warned.
The news comes as a Fine Gael senator mounts an eleventh-hour attempt to stop the bill heaping new taxes on Personal Retirement Savings Accounts (PRSAs) offered by companies.
Changes proposed by the Budget mean workers with so-called 'employer PRSAs' will end up paying an effective tax rate of 11pc on contributions from their employer. The current rate is just 2pc.
"Knowing changes of this nature are on the cards makes it impossible for advisers to continue to offer PRSAs to their clients," said Aidan McLoughlin, head of the Independent Trustee Company.
Fionan O'Sullivan, director at broker IFG, said he would advise "any company currently offering PRSA schemes to consider a move" to another type of product.
"We've already had people asking about moving," said Brendan Johnston, head of pensions at the Dublin-offshoot of insurance giant Zurich.
"If they go through with this (tax change), it's essentially shutting the employer PRSA market down."
His comments were echoed by David Harney, chief executive of Irish Life Corporate Business, who said the tax changes "threatened the continued viability (of PRSAs) for many people".
Figures from the Pensions Board show just over 17,000 companies have employer PRSA schemes on the go, covering more than 65,500 staff.
Many of these companies are smaller businesses that offer PRSAs because they don't have dedicated occupational pension schemes but are still legally required to make pensions options available to staff.
"The PRSA has been an instrumental part of government policy for the best part of a decade," said Mr McLoughlin, adding that it was introduced to address the "problems with pension coverage".
Companies and individuals who embraced the Government's policy are now being left "high and dry" by the tax changes, he added.
Zurich's Mr Johnston said the insurance industry had written to the Finance Minister on the tax changes in the hopes of getting the bill amended but had not yet gotten a reply.
"Employer PRSA tax is a significant issue for the industry and we're disappointed that a change hasn't been included in the Finance Bill," a spokeswoman for insurers' lobby group the IIF said. "The IIF intends to make further submissions to the Department of Finance and will continue to lobby for this anomaly to be corrected as soon as possible."
A chink of hope was offered last night when Fine Gael Senator Ciaran Cannon said he would propose the PRSA amendment when the bill went through the Seanad house today.
"This system is inequitable, even more so as PRSA pensions are generally favoured -- not by the higher earners but by lower paid workers," he said.
"My amendment, if accepted, will deal with this imbalance, bringing all pension schemes into line with one another."
Pensions Board chief executive Brendan Kennedy said he "couldn't comment" as it was a matter of government policy. A Department of Finance spokesman also declined to comment.