IRELAND - The Irish Association of Pension Funds (IAPF) has warned the government against cutting tax relief on pensions to provide short-term financing, in a pre-emptory move ahead of the Irish supplementary budget in April.

The briefing note, published at the end of last week, follows a “number of calls” for the government to curb tax relief on pensions on the basis that it favours high earners, however the IAPF claimed reducing tax relief to the standard rate would affect 800,000 ordinary members of occupational schemes, rather than the “super-wealthy”.

It claimed the calls to abolish or reduce tax relief are “largely based” on the “misinformed view that the government could raise about €3bn from abolishing tax relief” - a figure put forward in the government’s Green Paper on Pensions - which the IAPF said is “out of date and includes both double counting and invalid assumptions”. (See earlier IPE article: Diverting tax reliefs to state pension is “unsound”)

Instead, the organisation argued the maximum the government could raise by adjusting the system of tax relief is around €300m, yet in 2006 it collected €320m in tax from pensions in payment.

The IAPF claimed there would be “over 800,000 ordinary tax payers contributing to occupational pension schemes whose prospects for retirement would be shattered by radical adjustments to the current system of pension incentivisation”, while a reduction would also “increase the cost of the pensions levy to public sector workers by an average of 35%”.

Patrick Burke, IAPF chairman, said: “Members of defined contribution (DC) schemes are already reeling from pension fund losses of over 30% in the last year. Capping income tax relief to employees at the standard rate would largely destroy any incentive to save for retirement. Research shows that those most affected would not be the wealthy but lower to middle income workers on salaries from €40,000.”

Burke said the IAPF understands the government’s need to explore all opportunities for additional short-term financing, but warned changing the current tax relief system “will not raise anything close to the figures that have been suggested and would seriously threaten the future of private pensions in Ireland”.

“The government has already moved to restrict pensions benefits to the wealthy in the last Budget by reducing the earnings cap on relief to €150,000 from €275,239. Pensions provision in Ireland needs support - not action that could destroy it completely,” he added.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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