Pension rule limits can ‘unfairly affect’ women and self-employed

Pensions contribution limits penalise women workers and the self-employed, according to a leading pension trustee.

Independent Trustee Company (ITC) says the limits are based on a stereotypical way of working and are unfair to workers who, for various reasons, are either out of the workforce for a time or focusing all their financial energy on building up their businesses.

Pension rules limit tax relief on pension contributions. The amount you can invest in your pension, which is availing of tax relief at your top income tax rate, climbs in steps from 15 per cent of net relevant earnings for people under 30 years of age to 40 per cent for those over 60.

Net relevant earnings are essentially your annual income but there is an upper limit. If you earn more than €115,000 in a year, the percentage contributions are calculated on that €115,000, nothing more.

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There is also a lifetime cap – €2 million – on the size of a pension fund a person can build up.

More than three-quarters of pension advisers surveyed by ITC – 77 per cent – agreed that the annual limit should be scrapped. A slightly lower 63 per cent backed the scrapping of the lifetime limit.

Just over one in six said there was no need for change to either limit.

"The limits around annual contributions can unfairly affect anyone who takes time out of the workplace – and more often than not, this is something which impacts women who may leave the workforce for a period to start and raise a family," said Glenn Gaughran, head of business development at ITC. "These workers are essentially prevented from making up this time in terms of pension saving."

He said the annual limits suited people who remain in steady employment over a full 40-year career or more “but it actually penalises those taking career breaks”.

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“Similarly, business owners who focus on reinvesting in their businesses before going on to deal with their pension contributions in the latter part of their careers, are badly hit and forced to take a much smaller pension.”

Mr Gaughran said it was clear that five in six pension advisers feel the rules should be modified to some degree.

“In both cases, their choices reduce their ability to fund their pension schemes in certain years and the limits then preclude them from ever making up lost ground. All of which means they could potentially lose out on the opportunity to accumulate hundreds of thousands of pension benefits, through no fault of their own.

“We believe that everyone should be entitled to the same level of tax relief regardless of their gender or employment type.”