Monday 11 December 2017

IBEC urges Government to tackle 'serious flaws' in pensions policy

Charlie Weston, Personal Finance Editor

EMPLOYER body IBEC said the state pensions policy was in disarray and called on the new Government to take urgent steps to deal with the issue.

A survey conducted by IBEC shows that most employers expect their staff to save less for their retirement as a result of budgetary changes on the tax relief for pension contributions.

The survey also found that staff in almost three-quarters of companies had expressed concerns to employers about Budget 2011 pension taxation changes.

More than half of employers with voluntary pension schemes expect staff participation in the pension plans to decrease as a result of Budget 2011.

Pressure was likely to be brought to bear on employers to ensure that being a member of a company pension was voluntary rather than mandatory, the survey found.

Following changes in the last Budget, the tax relief on pension contributions has been reduced from 48pc to 41pc for those taxed at the marginal rate of income tax, and from 27pc to 20pc for those taxed at the standard rate.

This is because workers no longer get tax relief for PRSI payments, while the universal social charge is deducted from salaries before pension contributions are made.

As part of the IMF/ECB bailout, it is proposed that the rate of income tax relief on pension contributions will fall further. It is to be reduced for higher earners from 41pc to 34pc in 2012.

By 2013, the maximum rate of tax relief will fall to 27pc and will come down to 20pc for all taxpayers in 2014.

The tax relief changes will also make it less attractive for employees to top up their pensions with additional voluntary contributions.

IBEC director Brendan McGinty said the State's pensions policy was "in disarray".

"The Programme for Government failed to acknowledge the major flaw in the current approach to pensions. The last Budget made major changes to the tax system, but no consideration was made to the very negative knock-on effects these would have on pensions.

"We need to encourage people to save for their retirement, but planned changes to tax reliefs would remove any incentive to provide for a pension.

"The State may well be left having to financially support those who have not made adequate provision for their retirement as a result of the changes," he said.

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