Tuesday, 24 March 2009

Pension tax cuts in the Budget?

Everyone has their predictions about what will happen in next month's Mini-Budget, which is likely to be more juggernaut than Mini. Some possibilities are discussed in today's Irish Independent here.

The Minister needs to tread very carefully if considering reductions in tax relief available to those seeking to fund their pensions. Confidence in pension funds is at a low point at the moment, given the recent downward trend in fund values. This confidence will inevitably return when values start rising again. But if the Minister picks this point in time to announce cuts in tax reliefs, it could cause many people to simply scrap their pension plans altogether. This, of course, would be a bad thing for people's long-term futures and would render wasted all the millions spent on pensions awareness campaigns of recent times.

That said, tax savings are inevitably required. Here's one for the Government to consider - introduce a low rate of Capital Gains Tax and/or tax on dividend or rental income on pensions. Currently, neither tax exists within pension funds. At a rough estimate, funds under management in Ireland total over €55 billion and that's after all the recent falls. Even if there is a recovery of 5%, that would add €2.75 billion. A tax of 10% on gains alone would add €275 million to the Exchequer coffers, while still leaving pensions an attractive form of investment.

I'll only take 1% commission on tax savings for this idea.

1 comment:

Gerard said...

In projecting any 'savings' in the form of reducing tax relief on pensions, the Dept. Of Finance will have to start looking at their calculations in 'real time'.

Lets face it, redundancies and job losses means less tax/prsi reliefs being claimed by employers and employees alike. Same goes for alot of sole traders and co. directors with tax relief.

Even without the loss of employment or reduction in profits, lots of ordinary folk are reducing or stopping their pension contributions. It's just the reality of recession. Those that were planning to start saving for their retirement have put it on the long finger.

Reform of the Pensions has to come, but 'dealing' with the inequities of the tax relief system in this way, at this time is just plain stupid. Isolating this single issue just to raise a perceived few bob for the exchequer would imply that 'they know not what they do'.