IBEC: Staff set to save less for retirement

MOST companies expect staff to save less for their retirement because of recent tax changes.

Employers’ group IBEC said the reduction in pension reliefs in the budget could ultimately leave the state liable for increased costs at a later date.

It said the state may well be left having to financially support those who have not made adequate provision for their retirement as a result of the changes.

IBEC said the Government must urgently review pensions policy, adding that the state pensions’ policy is in disarray.

Following changes in Budget 2011, the tax relief on pension contributions has been reduced from 48% to 41% for those taxed at the marginal rate of income tax and from 27% to 20% for those taxed at the standard rate.

Under the National Recovery Plan 2011 to 2014, the rate of income tax relief on pension contributions will be reduced from 41% to 34% in 2012, to 27% in 2013 and 20% in 2014.

Employees in almost three-quarters of companies surveyed expressed concerns to bosses about the pension taxation changes, according to IBEC.

It said over half of employers with voluntary pension schemes expect staff participation in voluntary company pension plans to fall as a result of Budget 2011. IBEC director Brendan McGinty said that the Programme for Government failed to acknowledge the major flaw in the current approach to pensions.

“The last budget made major changes to the tax system, but no consideration was made to the very negative knock-on effects these would have on pensions.

“We need to encourage people to save for their retirement, but planned changes to tax reliefs would remove any incentive to provide for a pension.”

Employers urgently want the Government to reassess the implications of the tax relief changes announced in Budget 2011 and the National Recovery Plan.

Director of IFG Corporate Pension, Fionán O’Sullivan, said the results demonstrate the advent of affordability as a key factor in every aspect of expenditure for workers.

“The new administration needs to understand the longer term implications of their decisions when deciding their pension strategy. There is no logical rationale in adopting the slash and burn approach taken by the last Government to private sector pensions,” he said.

He said people need certainty on pensions and the Government needs to provide this. The survey was conducted among 241 member companies.