Pension tax relief rise for low-paid urged

Tax relief on pensions contributions for lower-paid workers should be extended in order to encourage greater pensions savings, the Irish Association of Pension Funds (IAPF) has told the Government.

In its submission to the Pensions Board's national pensions review, the IAPF says it is against the introduction of mandatory pensions, arguing that consumers already pay mandatory contributions toward their State pension through PRSI.

According to the IAPF, the State should incentivise lower-paid workers to make additional savings by making tax relief available on contributions at the top tax rate of 42 per cent to people who only pay tax at the standard rate of 20 per cent.

The IAPF warns against any dilution of the existing tax regime for pensions, which it says has supported the valuable level of retirement provision set aside by its members.

"Excessive change in the tax regime over a short timescale could weaken confidence in the stability of the tax system, thereby reducing the commitment of scheme sponsors and members to long-term savings," the association said.

However, a survey published yesterday by Hibernian Life & Pensions suggests that 54 per cent of adults are unaware of the current tax benefits of pensions.

IAPF chairman Joe Byrne questioned the appropriateness of the Government's pensions coverage target, which is that 70 per cent of the workforce should have private pension arrangements and not have to rely solely on the State pension in retirement.

"We believe it is dangerous to focus solely on the issue of the number of individuals covered by pensions schemes and lose sight of the need for such individuals to accumulate an adequate level of retirement savings," he said.

Special Savings Incentive Accounts (SSIAs) and mortgage repayments had been the first call for middle-income workers and were to blame for the low take-up of Personal Retirement Savings Accounts (PRSAs), the IAPF said.

The association, a non-profit organisation representing pensions providers and trustees, urged the Government to introduce tax incentives for SSIA holders to direct all or part of their savings into a pension.

It also warned that defined-benefit schemes, traditionally the most advantageous type of company pension scheme for employees, were under threat.

"The IAPF is concerned that the valuable level of benefits provided by defined-benefit schemes in Ireland is, perhaps, only one tax or regulatory change away from total cessation," it said.

If left unaltered, the current regulatory regime will result in a dramatic reduction in defined-benefit pensions in the private sector over a short period of time, according to the IAPF's members.