One million face higher pension fund contributions
Lower tax relief will add to cost
A MILLION workers face having to make higher pension contributions in return for a smaller retirement income.
PAYE workers are being hit by massive investment losses and must foot the higher cost of funding pensions because people are living longer.
They are also suffering due to huge risks being taken in investing their pension contributions, which have left a €30bn hole in company pension schemes alone.
And middle-income earners also face the threat of lower tax relief, which will push up the cost of their contributions.
Three out of four company pension schemes are now in deficit, with large numbers being wound up every month.
And workers have been warned that their retirement income will be nothing like what they had expected.
This warning comes on top of the government plans to gradually push up the retirement age to 68 by 2028.
The Pensions Board, which regulates the industry, warned yesterday that those in charge of pension investments were failing to learn the lessons of the downturn -- leaving money invested in risky shares and property.
Pensions Board boss Brendan Kennedy warned: "Irish pension schemes suffered serious losses between 2007 and early 2009 because of the substantial investment risks being taken.
"Pensions Board data shows that the level of investment risk being taken is still very high."
He warned that the lessons of the past two years were not being applied.
The stinging criticism was levelled at the trustees of company pensions, also known as defined benefit schemes.
Also in the firing line were professional advisers, and workers who make their own decisions about how to invest pensions money in defined contribution pensions.
"The great majority of trustees of defined benefit schemes rely on professional advice. It has to be asked whether that advice takes sufficient account of the nature of the liabilities of schemes and the consequences of the risks," Mr Kennedy said yesterday.
Almost €30bn has been wiped off the value of private pension funds in the past two years to leave the collective value of workers' company pensions now at €65bn, he added.
The majority of the money invested in private pensions is in shares and properties -- despite huge losses in the value of these assets. Mr Kennedy also warned workers that they would have to radically readjust their expectations.
The warnings came as it emerged that there are plans for a radical cut in the pension benefits of ESB workers.
One of the biggest pension funds in the State, the scheme has a deficit of €1.9bn. A proposed restructuring of the ESB pension will see a cut in the pensions payout for workers.
Hundreds of private sector pensions are also being radically restructured at the moment.
Pension schemes with big deficits have until the end of this year to submit plans to the Pensions Board to get rid of the deficits over a number of years.
Social Protection Minister Eamon O Cuiv, launching the annual report of the Pensions Board yesterday, denied that government plans to cut pension tax reliefs for those paying tax at 41pc would worsen the pensions crisis.
The Government plans to cut the tax relief for those who pay tax at 41pc to 33pc. For those paying tax at 20pc, the tax relief will rise to 33pc.
Mr O Cuiv would not say when the Government planned to implement the policy, which will mean that a higher-rate taxpayer will have to shell out €67 for every €100 they put into a pension.
At the moment, the tax relief regime means every €100 put into a pension costs a higher-rate taxpayer €59 excluding relief from PRSI and the health levy. The change will mean a worker must pay more into their pension to maintain the same level of contributions.
Defending the move, the minister said: "I find it hard to understand why someone on a low income who puts €10,000 into a pension should get less tax relief than someone on a higher tax rate."
Fionan O'Sullivan, director of IFG Corporate Pensions, said that thousands of people throughout the country had seen a cut in or curtailment of both their own and their employer's pension contributions, while many have had to halt contributions altogether.