If the gov' scrapped tax relief for pensions & doubled OAP would it work?

[Apollo]

met a guy recently who reckoned if the government scrapped tax relief on pension contributions and doubled the OAP to over €400/week that this would go a long way towards solving the penions problem.

They would save billions by withdrawing tax relief and have enough left over to double the OAP and the misery caused to people as a result pension funds being wiped out as witnessed over the last number of years would be put to bed.


Not sure if his numbers tally but the notion gave me pause for thought nonetheless.


Thougths anybody??

 

[T McGibney]

met a guy recently who reckoned if the government scrapped tax relief on pension contributions and doubled the OAP to over €400/week that this would go a long way towards solving the penions problem.

They would save billions by withdrawing tax relief and have enough left over to double the OAP and the misery caused to people as a result pension funds being wiped out as witnessed over the last number of years would be put to bed.


Not sure if his numbers tally but the notion gave me pause for thought nonetheless.


Thougths anybody??

Unfortunately, this would solve nothing.The OAP is too high as it is, a lot higher than the equivalent in NI and UK. Doubling it would be an obscenity. Pensioners generally don't have big mortgages or child-rearings costs, have medical cards and also enjoy subsidised private health insurance.

Sadly, there is no political will to do anything about this. Throwing even more money into this black hole would merely add to the scandalous bubble-era transfer of wealth from the current 30-50 age cohort in this country to the older generation, that we, and our children, will all be paying for, for decades to come.

 

[Apollo]

Hi,

Thanks for your reply.

I'm playing devils advocate here but is it not the case that the doubling of the OAP would simply mean that the exact same money the 30 to 50, & taxpayers either side of that age bracket, people you mention give back to pension contributors in tax relief each year as it stands would go elsewhere, i.e. to the doubling of the OAP???

And if people wish so save extra for their pension they can but the won't get any relief.

Given this scenario most pensioners, who as you pointed out already have free medical cards as well as other free benefits, would be more than content with their lot I would say.

And the 30 to 50 year olds could look forward to a retirement that would be secure and not worry about the fund performance of their pension which has been awful in the last 10 years in particular if you saw the recent prime time programme I think it was(yet fees and management charges still apply each year).

I know its not perfect but has the current system served us well?

Again I'm playing devils advocate here but the more I think about it the less bothered I am about withdrawing tax relief for peoples and companys pension contributions and the more I like the idea of using this same fund(3/4 billion I belief pension tax relief costs the state each year) to provide a more comfortable and secure OAP when I'm in my late sixties - many years from now!


thoughts?

 

[ClubMan]

Remove tax incentives for pension savings and many (most?) people will probably stop making pension contributions and then the state has to bear and even more onerous pension burden.

 

[mandelbrot]

The whole point of giving people tax relief on pension contributions now, is to ensure that they can arrange for their own financial security in their old age, precisely so that they don't have to end up entirely dependent on the State.

Or to look at it another way, the tax relief on pension contributions could be argued to be a deferral of tax liability. You invest it now, without suffering tax, and when you receive it as income from a pension further down the line you are then liable to income tax.

 

[T McGibney]

Hi,

Thanks for your reply.

I'm playing devils advocate here but is it not the case that the doubling of the OAP would simply mean that the exact same money the 30 to 50, & taxpayers either side of that age bracket, people you mention give back to pension contributors in tax relief each year as it stands would go elsewhere, i.e. to the doubling of the OAP???

And if people wish so save extra for their pension they can but the won't get any relief.

Given this scenario most pensioners, who as you pointed out already have free medical cards as well as other free benefits, would be more than content with their lot I would say.

And the 30 to 50 year olds could look forward to a retirement that would be secure and not worry about the fund performance of their pension which has been awful in the last 10 years in particular if you saw the recent prime time programme I think it was(yet fees and management charges still apply each year).

I know its not perfect but has the current system served us well?

Again I'm playing devils advocate here but the more I think about it the less bothered I am about withdrawing tax relief for peoples and companys pension contributions and the more I like the idea of using this same fund(3/4 billion I belief pension tax relief costs the state each year) to provide a more comfortable and secure OAP when I'm in my late sixties - many years from now!


thoughts?

Sorry, I don't understand your logic. You seem to be advocating higher tax charges for people in the age bracket when they are paying high mortgage and child-rearing costs, in order to enrich pensioners who face none of these costs and are already financially comfortable?

 

[Joe_90]

If tax relief on pension contributions was restricted to €40,000 pa the saving in tax would be €279M.

I would not give this to the OAPs as T says Pensioners generally don't have big mortgages or child-rearings costs, have medical cards and also enjoy subsidised private health insurance.

I also wonder about pensioners being exempt on income under €36,000. Surely a couple with 2 kids and a mortgage are more deserving of an exemption if one was merited.

 

[DerKaiser]

They would save billions by withdrawing tax relief and have enough left over to double the OAP

Nowhere near true.

Approx €4 to €5bn cost of doubling the OAP. The net cost of private tax reliefs would not be much more than €1bn*.

*The 2006 Green paper costed private pensions tax relief at €2.9bn p.a.

• €1.2bn was from no taxation on investment returns of pension funds. This would have reduced to about €0.8bn (fall in total fund values and assumed future growth) and is now offset by the new pensions levy of €0.5bn. This has therefore knocked €0.9bn off the 2006 cost.

• €200m was from PRSI reliefs that have now been removed.

• The other €1.5bn was largely income tax relief on employee and employer contributions which have almost halves since 2006, knocking another €0.7bn off the 2006 cost.