Pensions to become 'only for the rich' if tax relief is cut
ONLY the rich and public servants will be able to have a pension if the Government cuts tax reliefs for investing in a retirement fund, a conference has been told.
Any move by the Government to reduce tax reliefs on pension contributions in next week's Budget will mean that middle Ireland will no longer be able to fund a pension, Adrian Daly of the PensionSource company said.
Next Wednesday's Budget could see the tax relief for putting money into a retirement fund cut from 41pc to 20pc.
Tax relief is essential for ordinary workers to fund a pension, Mr Daly said. This is because public sector pensions are funded out of day-to-day tax revenues and the rich can afford to provide for their retirement.
He continued: "Middle-income workers, including those earning a little over the average industrial wage – not the fat cats – would be hardest hit by a reduction in tax relief."
Tax relief means that someone paying tax at 41pc can put €100 into their pension for a net cost of €59.
But the Government is considering reducing the tax reliefs to 20pc for pension investment.
An actuarial study by Milliman found that 550,000 workers will effectively suffer an average pay hit of €800 each if the tax reliefs are reduced.
The alternative, of capping the tax-relieved annual pension that can be built up to €60,000 a year, would hit 27,000 people.
However, senior public servants are understood to be fighting hard to resist a €60,000 cap as they would be hardest hit by this.
Mr Daly told the company's annual conference in Dublin that more needed to be done to encourage people to save for their golden years. Cutting tax reliefs most certainly was not the way to go, he said.
"You would need to save a pension pot of €1m to fund a pension of approximately €40,000. People are not saving enough as it is," the pensions expert said.
Mr Daly added: "The Government has left a climate of uncertainty as a result of its smash and grab through the pensions levy, plus other changes. This is turning people away from pensions saving and will be to the detriment of citizens and the economy."