Cut in tax relief 'could be death of private pensions'
IAPF president Patrick Burke
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PROPOSALS that the Government impose a cap on the tax relief on pensions in next month's supplementary budget will hit middle earners hardest, the Irish Association of Pension Funds said yesterday.
It claimed capping reliefs "could destroy Irish private pension provision".
The body said a reduction in relief on pension contributions to the standard rate of tax would hit 800,000 ordinary members of occupational pension schemes hardest and not the "super wealthy".
The combined deficits in defined benefit pensions are up to €30bn.
IAPF chairman Patrick Burke, presenting a paper on pensions, also disputed suggestions that providing pension relief costs the State €3bn a year.
Mr Burke said the most the Government could raise by adjusting the system of tax reliefs is around €300m.
"Capping income tax relief to employees at the standard rate would largely destroy any incentive to save for retirement.
"Research shows that those most affected would not be the wealthy but lower to middle income workers on salaries from €40,000," Mr Burke added.
He said there are over 800,000 ordinary taxpayers contributing to occupational pension schemes whose prospects for retirement would be shattered by radical adjustments to the current system of pension incentivisation.
"It must be remembered that most of the individuals who avail of tax relief at the higher rate are among those on average wages who pay higher rate tax once they earn €36,400 per annum.''
The IAPF chairman added that a sting in the tail in the reduction of pension relief to the standard rate would be to increase the cost of the pensions levy to public sector workers by an average of 35pc.
This is because the net cost of the 7.5pc pensions levy on someone earning €50,000 is 4.4pc, once tax relief at 41pc is deducted. If this relief is charged at 20pc, the net cost of the levy climbs by a third to 6pc.
The paper says that research indicates that a PAYE worker on the average wage would need to contribute the maximum allowable rate each year to achieve the same pension as someone in the public sector.
This would mean someone at the age of 30 would need to put in 20pc of their income into a pension, rising to 40pc for a 60-year-old.
The IAPF also claimed that the cap of €5m put on directors' pensions was intended to be broadly equivalent to the value of the pension of the highest-paid public servants.
Think-tank Tasc, which lobbies for social change, and commentator Fintan O'Toole, have called for the scrapping or the capping of tax reliefs on pensions.
- Charlie Weston Personal Finance Editor
