Tax change will cut pensions, say brokers
CUTTING the tax reliefs on pension investment for higher earners will wipe out €100,000 of the pension pot of the average middle-income worker who is providing for their retirement, the Irish Brokers Association has warned.
At present a higher rate taxpayer gets relief at the marginal rate of 41pc. Lower rate taxpayers only get relief at 20pc.
The Government has said it plans to standardise the tax relief for investing in a pension at 33pc, but has not given a timeline for when this will be implemented.
Yesterday the Irish Brokers Association (IBA) claimed the move had less to do with increasing the post-retirement income of employees and more to do with increasing tax on middle-income workers.
IBA chief executive Ciaran Phelan said: "The Government has implied that this new rate will really only impact the wealthy or the well-off, but we believe that the 33pc rate will hit 90pc of all worker contributions, resulting in a significant decline in the retirement savings of middle-income workers who are taxed at 41pc."
Mr Phelan said lowering level of tax relief would mean that someone on €50,000 who was contributing 15pc of their salary at present would be forced to effectively cut their level of pension contributions.
The only way to avoid this would be to pay more into their pension, something most workers would not be able to afford at the moment.
The net effect of lower tax reliefs would mean middle-income earners being stripped of more than €100,000 from their pension pot.
A worker who was putting €319 a month into a pension would see their pension income drop from €52,690 to €45,546 if they maintained the same net monthly contribution to their pension after the change in the tax reliefs.
"The Government claims that this proposal is intended to assist lower to middle-income workers improve their post-retirement income and to ensure that similar options are available to all groups of employees.
"This is a smokescreen. It is simply a method of increasing taxation on middle-income workers, the same group called upon to bail the economy out of the last recession in the '80s and the group that are now expected, though measures such as this, to pay for the current recession and bank bailout," Mr Phelan said.
The IBA said that what the country needed was a retirement savings system that was equitable, affordable and sustainable.
"This measure will drive a further wedge between those people lucky enough to have a pension completely funded by their employer and those who have to fund it themselves.
"Guess which category government ministers fit into," Mr Phelan said.