Standard Life Condemns ERSI Pension Tax Relief Proposals

by Jason Gorringe, Tax-News.com, London

01 December 2009

Standard Life Ireland has condemned the Economic and Social Research Institute's (ERSI) proposal to cut pension tax relief from 41% to 33%, arguing that it would cost Irish industry 2,000 jobs.

Nigel Dunne, Distribution Director at Standard Life Ireland, reportedly announced that:

"The proposal to reduce pension tax relief from 41% to 33% could prove to be a 'killer blow' for thousands of hard hit pension savers in the December 9 Budget. It could prove to be the last in a series of disincentives that proves the tipping point for pension savers and a vulnerable industry."

He continued: "Marginal rate savers will lose one third of the value of current reliefs if the government persists with a 33% single relief rate which excludes PRSI and levy relief on pension contributions."

The ERSI in late November called on the Irish government to cut pension tax relief for the country's highest earners "to save money and make the system more fair".

In a statement, the ERSI argued that tax relief at a standardized rate could help to achieve the overall objectives of public pension policy in a more efficient and equitable way.

Standard Life believes that the ESRI's view that eliminating or reducing pension savings incentives would have no impact on higher rate taxpayers savings levels is "wishful thinking".

The ERSI report suggested two options for the government, namely:

• Standardization of relief on all pension contributions (employee, employer and implicit government contributions), which could raise revenue of over EUR1bn per annum. This would imply a reduction in income tax relief for top rate taxpayers, but no change for those paying the standard rate. Revenue raised could be applied to sustaining State pension levels as demographic pressures on the financing of public pensions intensify;
• An increase in the relief from the standardised level to allow relief at a hybrid, 30% rate – an option similar to that recommended by the Commission on Taxation and included in the Programme for Government - which would involve gains for standard rate taxpayers and losses for top rate taxpayers, and a gain to the Exchequer in the region of EUR500m per year.

Arguing against the ERSI's proposal, Dunne reportedly added: "We find the ESRI view surprisingly misguided and in denial of economic realities."

He concluded: "A policy promoting adequate pensions coverage is vital to the social and economic future wellbeing of this State, with an ageing population, surely this should be one of the primary ESRI policy goals."

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