Pensions plans will 'impoverish middle classes'
GOVERNMENT plans to cut tax reliefs on pensions will impoverish the middle classes, a broad range of groups associated with the pensions industry said yesterday.
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.
At present, a higher-rate taxpayer gets relief at the marginal rate of 41pc. Lower-rate taxpayers only get relief at 20pc.
But giving all workers a standard 33pc tax relief for pension investment would effectively mean it would cost an extra €8 for every €100 a higher-rate taxpayer invests in a pension.
The vast majority of those who invest in pensions in the private sector are higher-rate taxpayers, earning between €40,000 and €70,000, a number of studies have shown.
Now a broad range of life companies and bodies representing the pensions industry have been brought together by the Professional Insurance Brokers Association (PIBA) in opposition to the pensions proposals.
Groups such as life companies Friends First, Standard Life Aviva and Canada Life came together with the Irish Association of Investment Managers and the Irish Association of Pension Funds to issue a joint statement slamming the proposed pensions changes.
The statement came as a report from investment company Aviva showed that the average worker has a shortfall of €9,100 in their retirement fund.
Overall, there is a savings gap of €20bn in pension investments for workers, according to research by Aviva. This is higher the older people are, as they have less time to make up the difference.
The average 60-year-old needs to invest around €21,000 for the next five years, the life company said. Changing the tax reliefs would exacerbate the pensions investment shortfall.
PIBA's Diarmuid Kelly said reducing the tax relief would impoverish the middle classes.
"We believe this has the potential to kill off interest in savings and impoverish generations of private-sector, middle-class people in retirement.
"If implemented, it will be a socially divisive policy further widening the inequitable gap between the quantity and quality of private- and public-sector pension coverage."
Chief executive of Standard Life Nigel Dunne said lowering the reliefs for those paying 41pc tax would discourage people from saving for their retirement.
"Reducing income tax relief will reinforce a perception already held by many consumers that there is no point in pension savings if tax relief is granted at 33pc on contributions and paid at 49pc on retirement income," he said.
Someone on a pension would have to pay 49pc in tax because of levies, in addition to the 41pc income tax rate, he explained.
The statement added that the average private-sector worker retired with a pension fund of just €150,000.
In contrast, a public-sector worker who has a pension of €30,000 would need a pension pot of between €1m and €1.3m to buy the equivalent pension in the private sector.