Concern at lower tax relief under mandatory pension plan

Consultants Mercer also opposes exclusion of close to 700,000 workers from auto-enrolment scheme

* Pensions consultant Mercer has raised alarm at indications that the Government might reduce tax relief on retirement savings.

The company was responding to the publication on Wednesday of a long-awaited consultation document on the introduction of mandatory workplace pensions for most workers, who would be automatically enrolled in the scheme.

"There is much to commend in the proposals," said Danny Mansergh, head of member communications at Mercer. "In particular, we are pleased to see a push for a significant level of overall contribution at 14 per cent between employer, employee and the state, along with the creation of a Central Processing Agency which will drive down the costs borne by employees and employers.

"We do, however, have significant concerns about the proposed reductions in tax relief, and the high numbers of people who will be excluded from auto-enrolment.


A proposal within the consultation document suggests the Government would contribute €1 for every €3 saved by the employee. This equates to tax relief of 25 per cent. However, higher paid workers can currently avail of relief on 40 per cent on pension contributions.

“It seems strange that a policy aimed at increasing the numbers contributing to pensions would expect to do it by reducing tax relief – bearing in mind that the average full-time worker is a higher rate taxpayer.

Accepting that the proposed State contribution is different to current tax relief, the Department of Employment Affairs and Social Protection said that auto-enrolment was aimed particularly at “people on lower to middle income brackets where the current tax relief arrangements may be less favourable than for higher earners”.

Standard rate taxpayers would attract tax relief of only 20 per cent under current arrangements.

Mercer also expressed concern at the exclusion of 675,000 workers without pensions who are either younger than 23, older than 60, earning less than €20,000 or who are self-employed. It urged the Government to reconsider “such widespread exclusions”.

The Government accepts that only 410,000 workers without pensions will fall under the mandatory arrangement but says other workers can opt in.

The former pensions ombudsman, Paul Kenny, welcomed the publication of the consultation. Speaking on RTÉ's Morning Ireland, he said it was "high time" such a scheme was introduced and it was something for which he had advocated for a long time.

Mr Kenny said it was important that people stay in the scheme once they are automatically enrolled.

* This piece was edited on August 27th, 2018