Public servants to bear brunt of lower tax breaks
Pensions association warns workers will suffer €1,800 cut in take-home pay once new relief rates are imposed
Published 05/01/2011 | 05:00
PUBLIC servants will suffer cuts in take-home pay of €1,800 once the Government imposes lower tax breaks on money put into pensions, according to the Irish Association of Pension Funds (IAPF).
Public servants were set to be the big losers from the plans to move to a 20pc tax relief rate for all by 2014, the IAPF said.
Director of policy at the IAPF Jerry Moriarty said public servants would take a bigger hit from the changes to pensions tax reliefs because they already get tax relief on the pensions levy.
Under the National Recovery Plan 2011-2014, better known as the four-year plan, tax reliefs on pensions are due to gradually fall to 20pc by 2014.
Already this year, money put into pensions by employees will no longer get relief from pay related social insurance (PRSI) and the health levy.
Instead, contributions will be liable for the new universal social contribution and will have PRSI imposed on them.
Next year, higher rate taxpayers will get 34pc tax relief instead of 41pc at present.
Mr Moriarty said: "Moving to a 20pc tax relief rate on pension contributions impacts take-home pay of middle income earners, with a significantly greater effect on public servants because of the tax relief on the pensions levy. Such a change will, in all likelihood, result in significantly lower overall savings for retirement."
A single person in the private sector earning €40,000 in a defined contribution scheme paying a 5pc contribution will suffer a 2pc reduction in take-home pay of €576 per annum or €48 per month.
However, a higher executive officer earning €52,955 could see a 4.69pc reduction in take-home pay of €1,788 per annum, or €149 per month.
According to the Department of Finance, the proposed changes would generate more than €940m in savings by 2014.
However, the IAPF contends that any savings should be achieved by focusing on the upper limits available.
Mr Moriarty added: "Most of the workers affected by this change will already have experienced reductions in income over the past two years and their capacity to absorb further reductions is diminished.
"Where possible, many are likely to reduce their pension contributions to offset this latest reduction and the implications of that will only become apparent when they retire."