Budget 2013 – Pensions, AVCs & USC

Budget 2013 – Changes to Pensions, AVCs & USC

In contrast to Income Tax, there have been quite a number of changes in the pension sector.  The government wants to encourage people on low and middle incomes to plan ahead and provide for their future financial stability but wishes to close some of the loopholes that allow high earners to benefit from disproportionate levels of tax relief. It is however worth pointing out that tax relief on pensions will continue at the marginal rate of tax.

For some time now there has been significant criticism that people in highly-paid roles can offset their tax liability by making substantial payments into their pensions. In a move that aims to strike a balance between asking people to provide for their future and fairness, Minister Noonan has instigated a cap on the tax relief that can be claimed. In a move that may prove challenging to administer, the cap on tax relief is set on pensions that will deliver income of more that €60,000 per annum. This is due to come into effect in 2014 and it will be interesting to see how this will be managed as pension fund values can vary quite significantly over the working life of the individual. A consultation process including the Dept. of Public Expenditure & Reform and the Dept. of Social Protection will be initiated in 2013 to work out the details.

Individuals who have made AVC contributions to their pension fund will be permitted to release some of the funds. Up to 30% of the AVC can be withdrawn from the fund however it will be subject to tax at the individual’s marginal tax rate.

In another move to seek to ensure fairness, the reduced rate of USC for people aged over seventy and with an income of over €60,000 per annum will be abolished on 1st January 2013 and standard USC rates will apply.