Lenihan satisfied with law to block pension tax abuse

FINANCE Minister Brian Lenihan has insisted that legislation to prevent the abuse of tax reliefs for pension purposes is working, despite a recent report indicating otherwise.

In the Finance Act 2006, the Government introduced measures to limit the amount of tax relief that could be claimed on private pensions. The measures meant that once an individual’s pension fund exceeded e5m, tax relief on pension contributions would no longer be available. The move was aimed at preventing high-earners from taking advantage of the taxsystem.

But concerns about the effectiveness of the legislation were raised by the Covered Institution Remuneration Oversight Committee, the state-appointed body which examined pay structures for banks covered by the Government’s guarantee scheme.

In its February report, CIROC noted that some organisations were acting in an “unacceptable” manner by paying senior executives “cash allowances” to compensate for the tax relief on which they were missing out.

“We consider that pension arrangements for top management should be reviewed,” CIROC said.

“We have become aware of a practice in which cash allowances were paid to compensate for the effects of the pensions cap imposed by the Finance Act, 2006.

“Pension schemes should reflect public policy and tax law and it is unacceptable that arrangements should be put in place which would be inconsistent with the intent of the relevant legislation.”

Labour TD Roisín Shortall recently questioned Mr Brian Lenihan about the steps he intended taking to address the issue.

But in his response, Mr Lenihan insisted the legislation was actually working.

“The extract from the CIROC report would indicate that the pension fund cap is working as intended,” he said. “From a tax perspective, the only concern relates to the tax implications of any alternative means of remuneration referred to.

“If an individual is paid a ‘cash allowance’, these amounts would be taxable in a manner similar to the tax treatment of any paid remuneration. My department is examining the matter to ensure that this is the case.”

At the time the Government introduced the pensions cap, the Opposition argued that the e5m limit remained too high.

“You are still talking about very substantial reliefs being available to a very large number of people,” Fine Gael deputy leader Richard Bruton said at the time.

In their recent pre-budget proposals, both Fine Gael and Labour argued the amount of tax relief the wealthy can claim on pensions should be reduced.

But Mr Lenihan announced no such move in the budget, saying only that the Commission on Taxation was examining “various aspects of pension tax treatment” and that he expected to deal with its recommendations in the next budget in December.


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