Ireland: Budget pension tax would cost us E830pa
23 October 2012
Posted by: SAIT Technical
By Business World
Executive summary (SAIT Technical)
The Irish Association of Pension Funds said that the proposed 20pc cut in pension tax relief would cost each worker on average E830 per year. The Association believes that if tax relief was to be reduced the hardest hit would be those pension savers in the average to middle income brackets generally paying tax at the higher rate.
Should the Government go ahead with a proposed 20pc cut in pension tax relief in December's Budget, it would cost each worker on average E830 a year, hitting middle income earners hardest, according to the Irish Association of Pension Funds (IAPF) today.
In advance of their Annual Pension Benefits Conference in the Convention Centre Dublin on Tuesday, the Irish Association of Pension Funds has highlighted what it sees as the financial impact on pension savers from the options facing Government in the upcoming budget.
According to the IAPF, the total budgetary savings from pensions already made in last two budgets is circa E530m.
The pension levy has extracted a further E900m so far with another E900m to come in 2013 and 2014, it said.
The Conference will discuss the alternatives facing Government should it feel the need to hit pension savers again. The IAPF believe that any changes should focus on minimising the impact on employment in the economy and protecting coverage and adequacy in both public and private sector pensions. The pension experts contend that this can best be achieved by not reducing tax relief, but by limiting the tax incentives for higher earners with a E60,000 pension income limit.
According to Jerry Moriarty, CEO of the Irish Association of Pension Funds, "Huge sums have already been extracted from pension savers; the national recovery plan only required E940m to be taken from pension savers, but we've already exceeded that level so there's no justification for taking more. Our research shows that a reduction of tax relief, which has been mooted by the Government from the current 41pc to 20pc for a typical worker, would cost them E830 per annum in take home pay and this would impact over 555,000 workers. In light of this we believe that any further general reduction tax relief would be sufficient to persuade thousands of workers to halt their current savings habit and to dissuade many more from saving for retirement at all as there seems little logic in saving through a scheme which gives 20pc tax relief on the way in and charges up to 50pc on the way out".
The IAPF contend that if tax relief was to be reduced the hardest hit would be those pension savers in the average to middle income brackets generally paying tax at the higher rate. They believe that such changes would also have a disproportionate effect on the self-employed who fund their entire pension themselves and would suck money from the economy in its wake.