Cutting pension tax reliefs would hit ministers hard
PROPOSALS to cut the tax reliefs on pensions would hit government ministers so hard that it would wipe out their entire salaries.
It has been proposed that the State could save €1bn by cutting the tax relief on pensions and by taxing the contribution to the pension by the employer/State as a benefit in kind.
Ministers' pension arrangements are so generous, such a move would mean they would owe money to the State every month instead of getting paid, calculations done for the Irish Independent show.
The Economic and Social Research Institute has calculated that €1bn could be saved by the Exchequer if the tax reliefs on pension is cut to 20pc for all taxpayers. Currently, higher rate taxpayers can get tax relief at 41pc for their own contributions. This means that a €100 investment in a pension costs a net €59.
But to achieve the €1bn savings the employer contributions would have to be taxed as a benefit in kind. This would mean that what an employer contributes to a person's pension (or the imputed state contribution to public sector pensions) would be taxed at 41pc, plus levies.
Calculations by the Independent Trustee Company in Dublin have found that instead of getting a salary of €191,000 a year, the impact of the benefit-in-kind tax would leave a minster who retires at 65 owing the State €13,300 a year.
Ministers only have to serve 10 years in the Cabinet to achieve pensions worth up to €6.9m.
Director of Independent Trustee Company Tommy Nielsen said: "Presently, a minister who has served 10 years is entitled to a pension of 60pc of his salary, which is applicable even if that minister were to retire from his position at 50 years of age."
He explained that for a private-sector worker to deliver such a pension, they would need to build up a pension fund of €6,870,504.
"This would require pension contributions of €35,149 every month. This figure is effectively what it costs us, the taxpayer, to fund these ministerial pensions -- on top of a minister's salary, which is just under €200,000, and their expenses."
No contributions are made by Oireachtas members to their pensions other than the pensions levy.
Mr Nielsen said that if the pensions benefit provided by the State to ministers was treated as a benefit in kind, the income tax and levies would exceed €16,000 a month. This is greater than a minister's gross monthly income of €15,917.