Madam, – Your columnist Fintan O’Toole has raised the issue of income-tax relief on pension contributions in the context of equity between private- and public-sector workers. I believe he has overlooked the elephant in the room.
Tax reliefs are normally given for good economic reasons (to encourage productive investment), or to secure social objectives. Presumably, the purpose of pension tax-relief is to encourage those without public service or occupational pensions to make adequate provision for their retirement. In fact, most private-sector workers have decided that private pensions are rotten value, even with tax relief, and have avoided them entirely. For those who invested in these schemes, the tax relief has done little more than subsidise the charges and fees exacted by the banks.
In the past decade most of the pension plans marketed by our major financial institutions have underperformed in an underperforming stock-market. In the past 12 months things have been much worse. Many people who have neither public service pensions nor, like Mr O’Toole, occupational pensions, have seen their pension funds devastated in the stock-market melt-down. This “levy” has been to the tune of 30 per cent – not a paltry 3 to 8 per cent.
Tens of thousands of Irish private-sector employees and self-employed people now face the grim prospect of retiring on pensions that will not generate a viable income. They will have to work until they drop, or rely on the basic state pension.
The private pension industry is a failed industry. Its products have proved incapable of assuring retirement security for any but a wealthy few. The billions of euro in tax relief forgone by the community in subsidising it have failed to achieve its social objective.
I believe that there is a better and fairer way. Instead of squandering more billions in tax-relief on a failed private pensions industry, we now need a universal funded pension scheme within which everyone would have their own pension account into which a small fixed percentage of all earnings during the working-life of the account-holder would be invested.
These accounts would be privately owned but managed in bulk by a state pension agency which would hold the fund in cash and government-backed investments. Payments into accounts would attract tax relief, and the account-holders could make additional voluntary contributions up to a set percentage of their income.
With such a universal scheme in place the rationale for separate pensions for public-sector employees would no longer exist and all future public servants would be embraced by the new scheme. The state old-age pension would continue to be the entitlement of all, but taxable for those whose total retirement income brings them within the tax net.
I cannot see how Fintan O’Toole, the union bosses, and those now calling for equality of pension treatment for all workers could disagree. – Yours, etc,