Goodbody warning over pension tax

ANY MOVE by Government to further tax pensions will discourage saving and force existing pensioners to take more risks with flexible Approved Retirement Funds, Goodbody Stockbrokers said yesterday.

Government policy had disincentivised private pension provision over recent years and this was a dangerous and counterproductive move, Goodbody chief economist Dermot O’Leary said, as the pressure on public finances due to pensions would rise significantly in coming years.

Pension costs rising towards 13 per cent of GDP would place an “unsustainable and unaffordable burden” on the public finances, which could be reduced by encouraging private pension saving, he added.

“Changes to the taxation regime on pensions have been very ‘itty bitty’,” said Brendan McGinn, director of pensions at Goodbody. “We need to move forward on an organised basis, not the fragmented smash-and-grab raid style approach of recent years.”

He said people generally were “playing catch-up” on retirement savings, and the current uncertainty was making them more nervous about committing to such long-term saving.

The Government needed to understand pension savings were not a pool of capital wealth to be taxed but a source of future retirement income that needed to last 15-20 years on average, Mr McGinn said.

Recent moves to increase to 5 per cent the “mandatory drawdown” on Approved Retirement Funds (ARFs) – the portion of the funds the Government taxes each year – ran the risk of people outliving their retirement savings.

Mooted further increases would force people to take on levels of investment risk with their ARFs unsuitable for people in retirement, he said. ARFs are the alternative to annuity purchase now open to members of defined contribution pension schemes. He noted the average ARF was estimated at about €200,000, a sum that would yield retirement income of about €10,000 per annum – less than the State pension.

Goodbody said pensions and wealth management in general were growth areas for the company at a time when institutional equity trading was in decline, particularly with the decision of index heavyweights like CRH, Elan and Greencore to move their main listings to foreign stock markets.