Pension plot winners and losers
Pension auto-enrolment legislation was finally published this week – but is it good for our pockets?
If you’re a bit suspicious about any Government pronouncements on pensions, you’d be right. Not so long ago, it tried to present plans to withhold our pensions for years as an ‘opportunity’ to continue working past retirement age!
Automatic enrolment is different – it is a huge financial boost to workers (if not to employers who foot most of the bill).
Pension contributions qualify for top-rate tax relief and can also potentially halve your tax bill – depending on age and income.
And there’s also the magic of ‘compounding’ your investment income year after year over a long period of time. All of this means you can get a lot of bang for your pension buck. Thanks to auto-enrolment, people with no pension on average wages who face a bleak retirement can easily transform that scenario.
A worker on near-average wages (€47,000) can build a €700,000 pension pot without much effort if started early, according to Michael Rooney, tax partner of accountants EY Ireland, who’s our guest this week in A Question Of Money (opposite). All you have to do is contribute the maximum 6% of your income, €236 a month in this case (on which you could also get 40% tax relief, almost halving it in reality).
If you pay off your mortgage too, you could end up a millionaire in terms of pension and property assets and be well set up for a comfortable retirement. You can always opt out if you like, but that would be financially inadvisable. (And you’ll be opted in again every two years whether you like it or not!)
So what’s the catch? The catch is that all this is largely at the expense of employers. For every €3 you put in your pension, they have to add €3, whereas the Government is only stumping up €1. Yet the Government is taking all the credit in what has become its signature move – appear to give something away but effectively charge it back to the electorate via a stealth tax.
The Government is again fobbing off its responsibilities and effectively imposing yet another form of corporate stealth tax that impacts us all.
If you have even a small company, you could be collectively paying billions for this measure far into the future.
If you’re an employee, the financial burden on your boss will affect what he or she can afford to pay you – or if they can even afford to employ you at all.