Sunday 21 January 2018

Pensions: Saving for retirement to cost an extra €1,000 a year

Charlie Weston Personal Finance Editor

MASSIVE changes planned for pensions will make it far more unattractive for people to invest in their retirement.

The controversial changes are expected to generate savings of up to €700m for the cash-strapped Exchequer. But the overall impact of the changes will be to reduce net income for a family on €55,000 by around €1,000 a year.

Pension experts last night said the changes were far worse than expected. Irish Association of Pension Funds’ head of policy Jerry Moriarty warned the changes would cause nothing less than a collapse in pension savings.

The tax relief an employee can claim for investing in a pensions from PRSI and the health levy are to go from next year. This will mean that it will cost taxpayers between €8 and €9 extra for every €100 they put into a pension.

There are also plans to gradually reduce the income tax reliefs on pensions. At the moment higher rate taxpayers can get income tax relief of 41pc when they invest in a pension.

This means there is a net cost of €59 for every €100 put into a pension. The Government also wants to see this tax relief rate fall to 34pc in 2012, to 27pc in 2013 and 20pc in 2014.

This means that will cost €80 for every €100 invested in a pension in 2014. Add in the loss of the relief for the health levy and PRSI and each €100 will cost €80 compared with €48 at the moment.

So putting money into a pension, for higher rate taxpayers, will cost an addition €32. Additionally, the amount of earnings that qualify for pensions tax relief is to drop from €150,000 to €115,000.

This would hit the self-employed who put large amounts of income into a pension fund later in life. The standard fund threshold, or the size of a pension fund that can be put together to benefit from tax reliefs, will fall from the current €5.4m amount.

However, the reduction in the size of the fund has not been specified. The lump sum amount that people can get tax free when they retire will also be reduced to €200,000.

At the moment private sector workers can take a quarter of their pension fund as a tax-free lump sum at retirement.

Exemptions Income tax exemptions for those over 65 years of age is to be abolished. At the moment a single person who is retired can get retirement income of €20,000 before they pay any tax. For a retired couple the amount is €40,000.

The plan says this will be phased our over four years, in what will amount to a massive blow to pensioners getting a pension on top of the €12,000 a year contributory State pension.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business