Warning against single rate of pension tax relief
THE INTRODUCTION of a single rate of tax relief of 33 per cent on pension contributions would have a “devastating” effect on retirement fund provision, the Irish Association of Pensions Funds (IAPF) has warned in its pre-budget submission.
Currently taxpayers can claim relief on pension contributions at their marginal rate of tax, with higher-rate earners entitled to relief at 41 per cent.
Implementing a lower single rate of relief, as proposed in the renewed Programme for Government, would make it impossible to encourage higher-income earners to save for their retirement, IAPF’s director of policy, Jerry Moriarty, said yesterday.
“By reducing tax relief, it will not make financial sense for higher-rate taxpayers, who face the prospect of paying higher-rate tax on their pension in retirement, to save for a pension.”
Many workers would reduce or stop their pension contributions as a direct result, he added.
It would also remain difficult to encourage lower-income earners taxed at the standard rate of 20 per cent to start saving, or to save more, for their retirement, despite the more attractive relief available. “Lower earners simply cannot afford it at this point in time, regardless of the tax relief.”
When the renewed Programme for Government was released in October, the version circulated to media and lobby groups specified that a new single rate of relief set at 30 per cent was to be introduced.
However, a different version posted on the Department of the Taoiseach’s website indicates that the new rate will be 33 per cent.
A spokesman for the Department of Finance said the reference to 30 per cent must have been a “typo”, and the rate “was always 33 per cent”.