Move to reduce pension-related tax breaks viewed as ‘a retrograde step’

THE Government is proposing a phased reduction in pension-related reliefs and tax breaks over the course of the next four years, in order to raise €700m in savings, something which has already been criticised as paving the way for a wholesale reduction in people making pension contributions in the future.

The four-year plan is looking for a phased-in reduction in tax breaks for those people on the higher rate of tax to the standard rate; beginning with the abolition of employee PRSI and health levy relief on pension contributions in 2011. The three years after that will see the rate of relief come down from 41% to 34%, 27% and finally 20% in 2014.

“The phasing out of tax relief on pension contributions from 41% to 20% over four years is a retrograde step and will lead to a scenario whereby individuals will cease to make contribution in 2014 and beyond,” according to John Heffernan, tax partner at Ernst & Young Ireland.