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| Growing Concerns on Pension Funding |
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By
KPMG
May 3, 2011 |
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A new survey from KPMG reveals the deepening concern among employers in relation to the costs of funding pensions and also with respect to employees’ ability to adequately fund their retirement.
Olivia Lynch, tax partner at KPMG in Ireland, says: “There is no doubt that concerns have been heightened by the Finance Act and may only deteriorate further, given the references in the programme for Government.”
The survey tested how employers view the challenges facing the pensions industry:
- Almost two thirds – 63 percent – would consider re-negotiating the terms of their existing pension scheme.
- Nearly half – 46 percent – would consider decreasing the employer pension contribution. This is broadly in line with the fact that employer PRSI relief is decreasing. Over three quarters – 76 percent – indicated that this is a real concern given the increased payroll costs.
- Some 56 percent stated that they would consider alternative funding arrangements for employees impacted by the standard fund threshold, which was reduced from €5.4m to €2.3m in the recent Finance Act.
Ms Lynch says the proposal by Fine Gael in its 2011 election manifesto to completely eliminate employer PRSI relief for pension contributions could have a significant impact on the net amount that employers are willing or capable of contributing to pension schemes.
“There is an inevitable knock-on effect on the amount of pension coverage for employees in the future.”
The KPMG survey results also found that 58 percent of employees/self-employed people are considering reducing their pension contributions due to the recent Finance Act changes.
“Coupled with the fact that 70 percent of employers are concerned that employees will not have adequate resources to fund their retirement, it is clear that there is currently a significant amount of uncertainty in the pensions arena,” said Lynch.
She said that pensions currently are the only main government-supported option for individuals to save for their retirement.
“It will be more difficult for a government to ensure that individuals are actively saving for their future in an era of decreasing tax support for what many view as one of the most important areas that governments should in fact be incentivising.”
“What is clear from our survey results, and due to the future expected curtailments in tax support for pensions generally, is that whilst pensions still have a role to play in retirement planning, people will also need to consider alternatives to help fund their retirement.”
Ms Lynch said that the Commission on Taxation proposed a scheme, not dissimilar to the SSIA scheme, whereby the government would contribute to a savings scheme for retirement as individuals contributed.
“It will be interesting to see whether this or other proposals are brought forward by the new Government,” she concluded.
Download the full report: Pension Survey Results
Dublin (Head Office)
KPMG
1 Stokes Place
St Stephen’s Green
Dublin 2
Tel. +353 1 410 1000
Fax. +353 1 412 1122
KPMG Website
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