Association of Pension Funds wants incentives in budget

THE prospect of the state pension not being cut as part of the upcoming budget has been welcomed by the Irish Association of Pension Funds (IAPF) but the organisation has expressed concern over the long-term health of occupational pension schemes.

In its pre-budget submission, published yesterday, the IAPF warned if the Government reduces incentives for pension schemes next month, it will result in fewer people saving less.

“The commitment in the Renewed Programme for Government to introduce a single 33% rate of tax relief on employee pensioncontributions, if implemented now, will have a devastating effect on pension provision in Ireland,” said Jerry Moriarty, director of policy at IAPF.

“It’s important that the Taoiseach, having rightly acknowledged the workers who are prudent and do the right and responsible thing by saving for their retirement, ensures that the budget does not undermine pension provision,” said Mr Moriarty.

“Pension schemes are already in crisis. Defined benefit pension schemes are experiencing large deficits, while defined contribution members have seen their investments fall in recent years. The system needs time to recover and restructure and now is not the time for such change,” he went on to say.

Meanwhile, economist Moore McDowell has criticised the Government’s proposal of a single tax relief rate of 30% on pension contributions, saying it would radically reduce the tax-free lump sum “which is the only real encouragement to pension saving in the current system”.

And changes to tax relief on pensions would save public money and be fairer, according to new research from the ESRI, which found tax relief at a standardised rate could help to achieve the overall objectives of public pension policy in a more equitable way. Currently, more than eight out of every €€10 of tax relief goes to taxpayers in the top one-fifth of the income distribution. This is because high income earners are more likely to participate in pension schemes and the value of tax relief at the top rate of income tax is about double that for the standard rate taxpayer.