Layman’s guide to pension contribution

LISTED below is a layman’s guide to the distribution of pension contributions.

As the tax deferral on pension contributions is recouped when pensions are in payment this is not factored into these figures.

Standard PRSA providers are allowed to charge 5% of contributions paid and 1% pa of pension fund assets which equates to 25% over a working life of 40 years. A further 32% of the final pension fund is deducted by using an annuity rate of 4.6%.

This pays back pension capital over 22 years when life expectancy at age 65 is only 15 years. The 20% interest earned @ 2% pa over 15 years on the 68% portion of the remaining fund is not included in pension payments.

The 68% assumes that the returns on the underlying assets compensates for the industry take. This leaves 23% of one’s pension contributions to provide a pension. I now ask, what benefit is our Government gaining from borrowing €4 billion per annum to fund a tax break which entices workers to expose €6 billion per annum of their income to this abuse?

Their reluctance to follow through on their promise to address this matter in the recent budget needs explanation. Their inaction was another major win for the pensions industry and a lost opportunity to end the inequity of this tax break which is of no benefit to the vast majority of workers.

Michael Terry

Castleknock

Dublin 15