Pension tax relief is sharply reduced (Irish Examiner) [PIBA mentioned]
Reaction to the sharp reduction in the level of income that can be set aside for private pension cover has been mixed.
The annual earnings limit eligible for tax relief has been cut to €150,000 for 2009 as compared to the 2008 limit of €275,239.
These measures will net the state €45 million in 2009 and €100m in a full year.
IFG, a major player in that market, said the adjustments to the annual earnings limit for tax relieved pension contributions was a “fair and equitable approach given the economic circumstances”.
Fionnan O’Sullivan, director with IFG financial services, welcomed the fact that individual tax relief was left unchanged.
There was concern within the pensions sector that the Government might have reduced the rate at which individuals could obtain tax relief on their pension contributions from 41% down to 20%, he said.
“Now, more than ever before, we need to be encouraging people to ~contribute to their own pensions funds and making provision for later life,” said O’Sullivan.
However the Professional Insurance Brokers Association (PIBA), the country’s largest group of independent brokers, took quite the contrary view.
“This budget further penalises people who have been funding their own pensions and is particularly harsh on late starters,” it said.
PIBA chief executive Diarmuid Kelly said the decrease in the ceiling for income allowed to be claimed when making pensions contributions from €275,000 to €150,000 means that the maximum a 50-year old can contribute to a pension and claim relief on is reduced from €82,500 to €45,000.
“Whilst this may seem generous it would take a fund of over €1m at the age 60 to get a civil service pension of just €40,000 per annum,” he said.
Elsewhere general savers felt the brunt of the minister’s actions as he moved to save as much as he could.
The rates of retention tax on deposit interest, together with the rates of tax that apply to life assurance policies and investment funds, are being increased by 3% to 23% and 26% respectively.
They will apply to payments, including on or after January 1, 2009.
That move is due to yield €85m revenue in a full year.
On the plus side, changes are being made to the stamp duties applicable to ATM and debit cards with the duty on current and new ATM and debit cards being cut from €5 to €2.50 with the duty on combined ATM/debit cards reduced from €10 €5.
The cost to the state for this reduction will amount to €14m in a full year.
Q. I’m earning €38,000 a year — how will these changes affect me?
A. If you are earning €38,000 you will pay 1% levy, or €380. For income tax purposes you will benefit from a reduced income tax liability of €210 as a result of an increase in the standard rate band increase from €35,400 to €36,400.
The increase in the PRSI ceiling from €50,700 to €52,000 will not affect you are as you are below the level of earnings.
Therefore, combining the benefit in the increased lower tax rate band of €210 and the extra tax payable under the income levy of €380, will result in a net reduction to your annual take home pay of €170 per annum.
Q. I’m earning €150,000 a year — how will the changes affect me?
A. If you are earning €150,000, you will pay 1% up to €100,000 and 2% on the next €50,000, making a total levy payment of €2,000.
You will benefit from a reduced income tax liability of €210 as a result of the increase in the standard rate band from €35,400 to €36,400.
The increase in the PRSI ceiling from €50,700 to €52,000 will affect you, and as a result you will pay an extra €52 in PRSI. Therefore, combining the benefit in the increased lower tax rate band of €210, the extra PRSI of €52 and the extra tax payable under the income levy of €2,000, will result in a net reduction to your annual take home pay of €1,842.
Q. Will this new levy take effect immediately?
A. No, the new levy comes into force from January 1, 2009.
Q. How much will the Government make from these changes?
A. The 1% income levy could raise €1.18 billion in a full year.