THE Government’s proposed cut in pension tax relief will hit as much as 90% of all worker pension contributions, and not just the wealthy segments of society, one industry representative group has suggested.
The cut in pension tax relief to 33% (for those who pay tax at the 41% rate), suggested earlier this year as a feature of this December’s budget, could end up costing workers up to €100,000, according to the Irish Brokers Association.
“The Government claims that this proposal is intended to assist lower- to-middle income workers improve their post-retirement income and to ensure that similar options are available to all groups of employees,” said the association’s chief executive, Ciarán Phelan – who went on to call the cut a “smokescreen”.
“It’s simply a method of increasing taxation on middle income workers – the same group called upon to bail the economy out of the last recession in the 1980s and the group that are now expected, through measures such as this, to pay for the current recession and bank bailout,” he added.
A reduction in PAYE relief will increase the net cost of a contribution for a middle income earner to 59%, according to the IBA, ultimately resulting in a large decline in the retirement savings of affected workers.
“As a country, we need a retirement savings system that is equitable, affordable and sustainable.
“This measure will drive a further wedge between those people lucky enough to have a pension completely funded by their employer and those who have to fund it themselves,” Mr Phelan said.
“The Government has implied that this new rate will really only impact the wealthy or well-off, but we believe that the 33% rate will hit 90% of all worker contributions, resulting in a significant decline in the retirement savings of middle income workers who are taxed at 41%,” he added.
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