Overhaul of pensions tax relief would affect thousands
THE Government is considering standardising tax relief on pension contributions at 30pc, in a move that would hit thousands of workers.
Taoiseach Leo Varadkar and Finance Minister Paschal Donohoe did not rule out the possibility of bringing in a new single rate for all employees when questioned yesterday.
But any move to change the rate will be a political hot potato.
If it was set at 30pc – which was put forward by a previous government as a fair proposal – it would affect thousands.
Those who qualify for higher relief will lose out, while those who get lower relief would gain.
The amount of tax relief you can get on your own contributions to a pension depends on your age.
Tax relief is given at your marginal (highest) tax rate.
But there is no relief in respect of PRSI and the Universal Social Charge.
Unveiled
It came as the Government unveiled a new ‘Roadmap for Pensions Reform’.
Mr Varadkar said the pensions situation is often described as a timebomb, but insisted there is time to defuse it.
The plan commits to ensure there will be no further increase in the State pension age before 2035.
Mr Varadkar also said the fact that most public servants have a pension while most private sector workers do not is “not fair”.
The Government will address this by rolling out a new auto-enrolment scheme.
The new pensions plan also revealed:
■ It will set up a new scheme to allow workers to defer the state pension at 66 and get higher payments when they retire;
■ It is already known an auto-enrolment scheme will be introduced in 2022 for workers reliant on the State pension. But the document confirms the State will top up contributions made by workers and employers;
■ It also suggests that workers on very low salaries, self-employed workers and workers who already have private pensions will be able to opt into the scheme;
■ Further increases in the State pension will be linked to changes in prices and wages, and payments will equal 35pc of average earnings. But the State can opt out of this if there is another economic crisis;
■ A “more logical and transparent” way of calculating State pension benefits, known as a ‘total contributions approach’, will be rolled out from 2020.