In its Pre-Budget Submission the Irish Insurance Federation (IIF) highlighted their concern at the possible introduction of a single standard 33% rate for tax relief on private pension contributions in the upcoming Budget, in line with the recent Programme for Government.  The IIF submission also says that up to 2,000 jobs in the life and pensions industry may be lost if the Government doesn’t make changes to the levy on life premiums introduced earlier this year. 

Mike Kemp, Chief Executive, IIF said, “Any move to disincentivise private pension provision at this time should be avoided. There is little doubt that moving away from marginal rate relief would lead to a reduction in the amount individuals contribute to their retirement funding.  We already have a significant gap between actual and target funding for pensions in Ireland and, while investor confidence is at a low point, markets are recovering and fund values will rise again.  Any pensions reforms should encourage people to make financial provision for retirement, not deter them.”

Urging the Government to retain tax relief on private pension contributions at each taxpayer’s marginal rate Mr Kemp said, “Tax relief on pension contributions is deferred tax, not foregone tax revenue, because pension annuities in payment are chargeable to tax at the annuitant’s marginal rate.”

Addressing the argument that standardising tax relief would target high-income earners, Mr Kemp pointed out that the benefits of private pension provision to higher earners had already been significantly curtailed by the introduction in recent years of both a pension fund cap and a limit on the earnings in respect of which relief on contributions can be claimed.  “Recent research clearly shows that the main beneficiaries of tax reliefs are middle income earners”, he said. “The value of tax relief as a proportion of actual average contributions peaks at around €50,000 gross income; as does the relief as a percentage of tax paid.  Not surprisingly therefore we find that the great majority of contributors to private occupational pension plans are in this middle income band, and NOT at higher income levels.  The Programme for Government’s suggested change in tax relief will hit middle income earners in the private sector the hardest, possibly deterring them from increasing or continuing with their contributions”, said Mr Kemp.

The IIF submission also includes recommendations for changes to 1% life assurance levy that was introduced in the 2009 Finance Act.  The industry has repeatedly called for changes to the levy as it distorts the market (because it applies to life assurance products but not competing products) and further disincentivises private pension provision (by imposing an additional tax).  Mr Kemp said, “If the levy is allowed to stand as it is currently formulated our members believe that it will significantly reduce the volume of new savings, investments and pension products sold by life assurers and threaten the retention of existing business, and could lead to up to 2,000 job losses. We urge the Minister to review the alternative proposals we have already put to the Department of Finance and reiterated in the Pre-Budget submission.”