Pension contributions expected to fall by 15%

PENSION contributions are set to plunge by 15% this year.

Falling incomes and a reduction in reliefs available are the main reasons behind the drop in contributions, according to tax experts, taxback.com.

This year PRSI relief for pension contributions was removed and in recent years there were reductions in the earnings cap.

This means that people earning over the specified cap (currently €115,000) will be restricted, in that any earnings over the cap are not taken into account when calculating the allowable deduction.

May saw the introduction of the pension levy, which is a 0.6% charge on pension assets held by the state.

Taxback.com say that further changes are anticipated in this area and the National Recovery Plan includes a proposal to reduce tax relief on pension contributions in the coming years.

Currently an individual is entitled to relief at their marginal rate of tax. This means that for individuals taxable at 41%, they are entitled to relief at 41%, while an individual taxable at 20% will receive relief at 20%. The National Recovery Plan suggests a reduction of relief on a phased basis to 34% in 2012, 27% in 2013 and 20% in 2014.

Senior tax manager at taxback.com, Christine Keily said: “With a reduction in incentives to contribute to pension funds in the future, those people lucky enough to still have funds available to invest may well seek other options for saving for their retirement.

“We are, however, encouraging people to review their options for investing in their pensions prior to the upcoming 2010 tax deadline in order to avail of the maximum relief possible.”