Workers told to increase payments as charges on their way
PEOPLE who already pay into a pension scheme have been advised to maximise their contributions for what is left of this year and next.
This is because further pensions tax changes to be introduced in 2012 will make it more expensive to pay into a scheme.
At the moment contributions avail of relief at the individual's higher rate of taxation. By 2012, relief will be cut to 34pc, then falling to 20pc by 2014.
This means that people with pensions should maximise personal contributions this year and next to benefit from top rate tax relief, pensions expert Tony Gilhawley of Technical Guidance said.
However, employee pension contributions will no longer be able to claim relief from Pay Related Social Insurance (PRSI) and the health levy (now renamed the universal social charge) from the beginning of next year.
Up to now, PRSI and levies are applied to wages after pension contributions have been made. But from next year the PRSI and social charge will be applied before money is put into a pension.
This will cost someone who puts €1,000 into their pension an additional €80, Mr Gilhawley calculated.
Mr Gilhawley said that the fact that pension fund holders will now be paying PRSI and the universal social charge on pension contributions meant the effective rate of tax relief was set to fall.
And in an unexpected move in last week's Budget, the PRSI exemption for private sector employers on payments to staff pension schemes will be cut by 50pc from the new year.
This will make it more expensive for private-sector employers to contribute to an employee's pension.