Tax-relief cut on pensions to hit public sector hardest
PUBLIC servants will be the big losers if the Government goes ahead with plans to reduce the tax reliefs on pensions, a leading pensions body said last night.
The Government is planning to reduce the tax relief rate from 41pc for higher earners to 33pc, but an executive officer in the civil service will be €58 a month worse off if this happens.
A private sector worker on €40,000 a year will be €26 a month worse off.
This is because workers will have to contribute more to their pension schemes just to get the same amount of money into their pension schemes, as they will be getting less in tax reliefs.
An executive officer in the civil service on €42,311 will find herself out of pocket by €58 a month if she is to maintain the same level of pension contributions, according to a report commissioned by the Irish Association of Pension Funds (IAPF).
Over a full year, the executive officer would be €702 worse off, assuming she is single and paying pay-related social insurance (PRSI).
In contrast, a married private sector worker on €50,000 with one income in the household will find themselves €34 a month worse off from the reduction in pensions tax reliefs.
A higher executive officer in the civil service, earning €52,000 a year, will be down €985 a year, or €82 a month, according to IAPF calculations.
Director of policy at the IAPF Jerry Moriarity said the current incentives put in place to save for retirement needed to be maintained, at a minimum.
"Reducing the incentives, as outlined in the National Pensions Framework, will result not only in fewer people saving for retirement, but also reduced contributions by those that continue to save."
He added that the Government should focus on ensuring it had incentives in place so that its policy target of having 70pc of the workforce saving for a pension were achieved.
Mr Moriarity said that the Government's own figures showed that the savings for the Exchequer from cutting the tax relief on pensions savings for those paying tax at the higher rate would generate savings of just €115m.
"However, such a change is likely to result in changes in behaviour and will, in all likelihood, result in lower overall savings for retirement," he added.
The IAPF said that most of the workers affected by this change had already experienced reductions in income over the past two years and their capacity to absorb further reductions was greatly diminished.
Mr Moriarity said that many workers who paid into a pension were likely to reduce their pension contributions to offset this latest reduction and the implications of that would only become apparent when they retired. He said more than half of all defined benefit schemes had increased member contributions or were likely to in the near future.