Irish Executive pensions should see tax subsidies cut further, says academic

IRELAND - Ireland should lower tax subsidies for executive pensions and redistribute tax relief to middle and lower pensions earnings, economist Gerald Hughes told a Dublin pensions conference yesterday.

The average value of an executive director's pension fund in a large Irish firm is €4.1m - 34 times more than the average €120,000 value for other employees, Hughes, a professor at Trinity College Dublin, told the Economic and Social Research Institute conference.

Employers' pension contribution for executive directors is almost 26% of salary, compared to 7% for other private-sector employees. Yet top managers make little no contribution to their own pensions, in contrast to other employees.

Despite the absence of employee contributions from executive directors, the top 20% of earners disproportionately benefit from tax relief and exemption from benefit-in-kind taxation, claimed Hughes. The estimated costs of relief and exemption from benefit in kind taxation were €150 million and €540 million, respectively, in 2007 - the last year for which data was available - on an overall employer contribution on behalf of employees of €1.4bn.

Hughes was critical of two policies introduced this year to address the pensions disparity. The first reduced the annual earnings contribution eligible for pensions tax relief from €150,000 to €115,000, while the second cut the lifetime personal allowance of an individual pension fund from €5.4m to €2.3m.

He told attendees that while these measures would make the pension system more equitable, much greater equality could be achieved by reducing the annual earnings limits on pension contributions from €115,000 to €75,000, and by reducing the cap on individual pension funds from €2.3m to €0.6m.

He said the cap should take account of combined employer and employee contributions, as well as of state and private-pension benefits.

Hughes's research is based on a sample of 48 large companies, of which the majority are quoted. According to the sample, executive directors are far more likely than other employees to enjoy defined benefit schemes. In contrast to other employees, who are likely to retire at 65, executive directors will on average retire at just over 60 years.

Against the pension perks enjoyed by executives, Hughes cited a pensioner poverty rate in Ireland second only to that in Korea - and significantly above those in Portugal and Greece - among OECD countries.