Tuesday 24 October 2017

Pensions tax plan to 'hit public sector hard'

Charlie Weston Personal Finance Editor

PUBLIC servants will be the biggest losers if proposals from a Government-funded think tank on pensions are implemented, it was claimed.

A paper prepared for the state-backed Economic and Social Research Institute (ESRI) has called for further restrictions on the tax reliefs for private sector workers putting money into a pension.

Prof Gerard Hughes argued that public companies were paying pension contributions for top executive directors that were 36 times the average for other employees.

He found that tax reliefs were allowing the executives in major stock market quoted companies to benefit from an average of €100,000 a year being paid into their pension funds.

Prof Hughes called for a cap on the size of the pension fund that can be built up through tax reliefs in the private sector.

He said those building up a pension should be allowed to assemble a fund of no more than €600,000 though tax reliefs.

But the Irish Association of Pension Funds (IAPF), which represents trustees of funds in the private sector, said his proposals would heavily impact the public sector.

Jerry Moriarty of the IAPF said the plan to restrict the size of a pension fund that could be built up under tax laws to €600,000 would mean a pension of just €13,800 a year for a public servant. This assumes a pension for a woman with increases for inflation based on public sector pensions calculation rules.

Mr Moriarty said: "As the ESRI seems to be arguing for equity between higher and lower paid people, they should be aware that under their proposals public sector pensions would need to reduce dramatically."

The ESRI was reluctant to look at the generosity of public sector pensions, particularly those for politicians and senior mandarins, Mr Moriarty said.

The IAPF is in favour of capping at €60,000 the income value of pensions that people can build up using tax relief.

The alternative of restricting tax relief to the 20pc rate would cost 550,000 workers an average of €800 a year, Mr Moriarty said.

The lavish levels of politicians' pensions hit the headlines last week when it emerged it would cost €36m to buy the pensions of Cabinet ministers on the open market.

The ESRI paper calls for a rebalancing of pension tax reliefs away from top earners. The report, which analysed contributions paid to 147 executive directors in 2009, found the average employer contribution for staff was around 7pc of salary, but 26pc for directors.

See inside today's Irish Independent for a Your Money pensions supplement.

Irish Independent

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