MINISTER FOR FINANCE Michael Noonan has announced several changes to the Government pension policy during the Budget 2013 announcement.
The Minister said that it was “in everyone’s best interest” that as many citizens as possible continue to invest in pension schemes, which he described as being a very important part of the financial services industry in Ireland as well as enabling people to make provision for their retirement and old age.
Despite this, he noted that previous Government has allowed “hugely generous” pension arrangements that were subsidised by the taxpayer. Noonan said that his Government wished to encourage those on lower and middle incomes to save for pensions, but that it would not pensions “of the scale previously allowed to be accumulated at the expense of taxpayers whose actual earnings are, in many cases, a fraction of those large pensions”.
The Minister announced the Government’s change of policy in three key areas:
- Tax relief on pension contributions will only serve to subsidise pension schemes that deliver income of up to €60,000 per annum (taking effect from 1 January, 2014)
- Tax relief on pension contributions will continue at the marginal rate of tax
- The Pension Levy announced as part of the Jobs Initiative will not be renewed after 2014
Noonan said that the current arrangements governing the maximum allowable pension fund at retirement for tax purposes of €2.3 million still allowed for “very generous pensions for higher earners through tax-subsidised sources” – particularly when utilising Defined Benefit schemes in both the public and private sectors. “Therefore, the necessary arrangements to give effect to the Programme for Government commitment to effectively cap taxpayers’ subsidies for pension schemes that deliver income of more than €60,000 per annum will be put in place in 2014,” he said.
He said the retention of marginal rate relief on pension contributions, coupled with the proposed changes to maximum tax, would preserve tax relief for those earning under 60,000 annually.
Noonan said that constitutional and legal constraints “severely limit” what steps the Government is able to take in relation to pensions already in payment. However, in order to ensure equity between all citizens based on their level of income, the reduced rate of USC for those over 70 with an income in excess of €60,000 will be discontinued from the 1 of January 2013 and the standard rates of USC will apply.
From the new year, Top Slicing relief will no longer be available on ex-gratia lump sums in respect of termination and severance payments where the non-statutory payment is €200,000 or over, Noonan said. Currently, the individual’s average tax rate for the previous three years applies to such lump sums rather than the marginal rate of 41 per cent.
“I have been advised in numerous submissions of the value of allowing limited early withdrawal from AVCs. Therefore, in the Finance Bill I will make provision for persons with AVCs to withdraw up to 30 per cent of their value,” he said. “Any amounts withdrawn will be subject to tax at the individual’s marginal rate since marginal rate relief was provided on the contributions on the way in. The option will be available for a 3 year period from the passing of Finance Bill 2013.”
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