Pensions industry challenges ‘benefit’ of auto-enrolment State contribution

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Pension News

Irish-Life,Auto-Enrolment,Tax

Irish Life says savers do better under existing tax-relief regime and new approach will hit take home pay of lower earners the hardest

Compulsory workplace pensions will leave even standard-rate taxpayers less-well-off than under existing pension arrangements, according to numbers presented by a senior industry figure.

However, numbers crunched by Irish Life make the case that people are getting a reduced benefit under the incoming system, which is currently passing through the Oireachtas and is scheduled to come into force next year.E-gates of hell signal start of travel chaos season Under existing tax relief rules for occupational pension, a worker paying tax at 20 per cent and contributing €1 to their pension, effectively only pays 80 cent because the money is taken from their earnings before the 20 per cent income tax is applied.

But that ignores that, under auto-enrolment, a greater sum will actually be invested in the pension – €2.33 for every €1 put up by the worker – than under the existing pension relief arrangement where the sum invested will be €2. “Auto-enrolment has an exaggerated impact on take-home pay as there is no tax relief,” he said, giving the example of someone earning €30,000.

 

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