IBEC: New government must review pensions policy
IBEC, the group that represents Irish business, today released the findings of a survey of 241 IBEC member companies, which it says highlights the negative effects tax changes from Budget 2011 are having on pensions.
The group said that the State pensions policy was in disarray and called on the new Government to take urgent steps to address the issue.
The majority of companies surveyed expect staff to save less for their retirement as a result of recent tax changes.
Following changes in the 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.
Under the national recovery plan 2011-2014, the rate of income tax relief on pension contributions will be reduced from 41pc to 34pc in 2012, to 27pc in 2013 and 20pc in 2014.
The survey also found that:
> Employees in almost three-quarters of companies surveyed have expressed concerns to employers about Budget 2011 pension taxation changes
> Over half of employers with voluntary pension schemes expect staff participation in voluntary company pension plans to decrease as a result of Budget 2011
> 64 percent of employers to whom additional voluntary contributions (AVCs) are applicable anticipate AVCs will decline as a result of Budget 2011
> 73 percent of employers with pension schemes expect standardisation of pension tax relief to result in reduced employee pension contributions
> 69 percent of employers with a voluntary pension scheme believe standardisation of tax relief will result in a reduction in the number of participating employees
> 67 percent of companies operating a compulsory pension scheme expect standardisation of pension tax relief to increase pressure to change from mandatory to voluntary scheme membership.
IBEC director, Brendan McGinty said: "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 reduction in reliefs could ultimately leave the State liable for increased costs at a later date. 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."
"IBEC welcomed the announcement in December that Irish pension funds will be given the opportunity to invest in longer-term Irish bonds and to price their liabilities to pensioners on the basis of those higher yields.
"Such State provided annuities have the potential to reduce the cost of pension purchase. However the launch of these bonds have been delayed and this needs to be finalised as soon as possible to allow trustees of distressed schemes decide what is appropriate for them." concluded Mr McGinty.