CUTTING the tax relief on pension contributions would mean public servants like teachers having to pay out an additional €1,700 a year, a leading pensions expert said last night.
A paper presented to the Dublin Economic Workshop at the weekend called for the lowering of pensions' tax reliefs.
Trinity College Dublin economist Micheal Collins and accountant Mary Walsh said savings of up to €1bn could be made by cutting the relief on pensions to 20pc for all.
At the moment higher-rate taxpayers can claim tax relief of 41pc on pension payments.
This means that an outlay of €100 on a pension costs a higher-rate taxpayer just €59 because the taxpayer effectively gets the tax back.
Dr Collins and Ms Walsh said standardising the tax relief at 33pc would save the Exchequer €750m, and the savings would be around €1bn if the relief was cut to 20pc for all.
In a paper presented in Kenmare at the weekend, Dr Collins said the fact that higher-rate taxpayers get more tax relief for pension investments was a "glaring inequity in the taxation system".
Spokesman for Social Justice Ireland Fr Sean Healy claimed €1.4bn could be saved by reducing the pensions' tax reliefs to 20pc.
But Tony Gilhawley, regarded as the leading expert on the technicalities of pensions, said everyone with a pension would have to pay more to get savings of €1bn from the tax reliefs.
Mr Gilhawley, a director of actuarial firm Technical Guidance, said the only way to get savings of €1bn by cutting the pension tax relief to 20pc was to also tax the value of the contributions made to pensions by employers. This would hit public servants hardest, he said.
Mr Gilhawley, who compiled figures for the the Professional Insurance Brokers Association (PIBA), said the Economic and Social Research Institute (ESRI) had suggested tax savings of €1.1bn in a paper last year.
"But this assumes the taxing of the value of employer pension contributions is in the hands of employees, a fact which most commentators have missed," he explained.
The ESRI assumed that the imputed cost of the employer contribution to the pensions of public servants was 20pc a year.
Taxing this at the marginal -- or 41pc -- rate would mean a teacher earning €60,000 a year would be hit hard.
Instead of the current situation where teachers got a net tax relief of €1,600, they would end up having to pay an additional €1,700 into their pension scheme, Mr Gilhawley said.
"This point has been completely missed by commentators and politicians who point to a €1bn-plus saving by 'just' reducing pension tax relief.
"The €1bn-plus saving for reducing pension tax relief would only be obtained by taxing employees at marginal [41pc] rate on the cash value of their employer's contribution to a pension scheme for them, as well as reducing tax relief to standard rate for personal contributions," Mr Gilhawley said.