Tax relief on pensions
Sir, – John McManus (Business Opinion, November 19th) is feeling sorry for the pensions industry because two reports have been published within the last few weeks which reveal facts about the industry which it has done its best to cover up.
The report on pension charges by the Department of Social Protection confirms that charges can eat up 30 per cent or more of an individual’s pension fund, as the TCD Pension Policy Research Group showed five years ago in a book published by Tasc called Choosing Your Future: How to Reform Ireland’s Pension System. My report on executive directors’ and other employees’ pensions showed that the executives who decide on pension arrangements in 48 large publicly quoted companies make far more generous arrangements for themselves than for rank and file employees.
It appears to upset McManus that one of the remedies which I suggest to make the pensions playing field more equitable is to give pensions tax relief at the same standard rate of tax (20 per cent) for both higher and lower income taxpayers rather than continuing to give higher earners tax relief at twice the rate of lower income earners (41 per cent versus 20 per cent).
If this policy were adopted the Department of Finance Tax Strategy Group estimates that it would yield extra revenue of about €675 million annually. This revenue should be used to maintain the value of social transfers to pensioners and to resist calls for cutting such transfers, as the troika and others have suggested.
Currently nearly two-thirds of the income of all persons aged 65 and over and 90 per cent of the income of the bottom 60 per cent of pensioners comes from social transfers. Any cut in the State pension would push large numbers of pensioners into poverty.
McManus warns that if executive directors and other high earners do not continue to receive tax reliefs at twice the rate of ordinary taxpayers they are liable to channel the money that would have gone into pension schemes into “other vehicles, possibly avoiding tax entirely” and he exhorts us to “remember Ansbacher”. I hope he is not suggesting that another golden circle should be allowed to avoid paying tax with impunity. – Yours, etc,