Pensions: another stealth tax

In the last issue of Socialist Voice it was shown that, as part of the liberal agenda, the period of wage-slavery was being extended to the degree that it is unlikely that most people forced to work until seventy years of age or beyond will be able to enjoy their final years for very long.

The latest proposals from the Government are deliberately designed not only to continue the existing inequity in funding retirement but actually to entrench that inequity under the guise of reform. It is highly likely that proposed reforms will in the future be used to undermine the state retirement pension.

According to the minister for employment affairs and social protection, Regina Doherty, the reason for the new proposals is that the majority of workers will only have the state retirement pension on retirement. Instead of trying to improve and enhance this, the new proposals will boost private-sector pension providers.

The proposals are ostensibly straightforward. All PAYE workers earning more than €20,000 per year will automatically be enrolled in a private pension scheme if they are not already a member of one. This will begin in 2022, at which point they would pay 1 per cent of income. This would rise by 1 per cent every year to 2027, when it would reach 6 per cent. The employer would match the employee’s contribution up to salaries of €75,000, and the state would also contribute €1 for every €3.

Employees would be able to choose the pension provider and the level of risk they were willing to take with their pension “investment.” Management charges for the fund would be limited to 0.5 per cent of the funds invested.

Brokers Ireland, which represents 1,250 brokers’ firms, not surprisingly welcomed the proposals. It’s obvious that this is part of a liberal agenda to undermine the state pension and pass a very lucrative market to private-sector speculators.

The minister said the Government was committed to the state pension, which “will remain the bedrock of the pension system and a protection against poverty.” But the state pension “is not designed or intended to deliver full income adequacy in retirement.”

Instead of addressing that problem and trying to develop and improve the state pension, the Government in effect is trying to undermine it. Those with only the state pension will find that increases will be at the whim of the Government of the day, even though they have contributed to the state pension through PRSI. It will in effect be a payment to relieve poverty.

Joan Burton of the Labour Party welcomed the proposals, and in fact claimed credit for them from her time as minister. Burton and the Labour Party did untold damage to the trade union movement, and she initiated the regressive process of moving the retirement age from sixty-five to sixty-six.

Just to demonstrate how far removed these bourgeois are from the working class, she made the following insightful observation: “I think there is a fear there that some people might see this as a tax. It’s not a tax but it is another contribution.”

That type of sophistry might wash in D4, but it won’t when you see 6 per cent of your pay going to a private-sector pension fund.

There is another aspect to this, which the Labour Party never addressed when in Government, even though Burton and Co. were well aware of it: the existing system of tax relief for private pensions is unsustainable. The pension tax relief comes to over €2.4 billion per annum. This amounts to 45 per cent of all tax reliefs. In practice, the tax relief for private pensions has undermined the tax base.

It is only worth taking out a private pension if you are a 40 per cent taxpayer, because of high charges by the providers. For 20 per cent taxpayers it’s not worth their while, and they end up financing the tax relief for the higher-paid.

On top of this, the state retirement pension is capped. The contributions are pay-related, but, regardless of the value of the contributions, the pension is capped.

Previous ministers for finance came under pressure from the OECD to address the issue of tax relief. But the pensions industry is so powerful that it easily blocked any meaningful reform.

The new proposals look like another sop to the pensions industry. If the tax relief is reduced to, say, 25 per cent, the compensation for the fund managers would be to force the lower-paid to join private-sector schemes and so fund their fee income.

Joan Burton may not want to call it a tax, but your net wages will decrease for no guaranteed return if these proposals go through.