Are tax reliefs on pensions for higher earners too generous?

[RedOnion]

If I’m on €150k, I can stick €29k into my pension.

If I’m an “employee” with, for example, RTE, I have my own one-man-band company and I can squirrel multiples of that away.

That isn’t fair. Either allow everyone to fund for a capital sum that will deliver 2/3 of final salary or restrict employer contributions by one-man-band companies to the same €115k/percentage stuff.

To give a very practical example, without my full financial details.
I'm currently an employee. Late 30's and mortgage free, with a nest egg to meet unexpected expenses.

Nature of my work would allow me to set up a "1 man shop" company, and continue doing what I do, with the same job security.

Purely from a pension perspective I am considering doing so, but at early stages in analysing. Round numbers below, and ignoring other differences of being self employed.

Option 1:
Employee.
100k salary, with 15k employer contribution.
Max contribution I can make is 20k, so total pension contribution of 35k.

Option 2:
Company director
Total company income 115k which matches total package of employee.
I've about 200k existing pension funds which impact the total I can contribute, but it's still significant. By setting my normal retirement age as 60, my contributions can be about 100% of salary. Basically I can get relief on as much as I can afford to put away.

A further motivation for me is my wife doesn't currently work, so isn't building a pension pot. When she returns to work, the plan is to maximise her pension contributions, but it'll never be a huge pot. @Brendan Burgess idea of age related funds would make a huge difference in cases like my wife's where she'll have missed about 8 years of working.

 

[Gordon Gekko]

You could also employ your wife.

That way you can access €25k extra of her 20% rate band and you can fund a pension for her.

 

[Sarenco]

By setting my normal retirement age as 60, my contributions can be about 100% of salary. Basically I can get relief on as much as I can afford to put away.

That would be a great result for you but a terrible result from the exchequer's perspective.

Ok, here are my suggested reforms:-

• In my opinion, there should be an overall annual limit on total contributions to an individual's pension pot from all sources (company, employer, self). It should be a fixed sum regardless of age - I would suggest €50k initially, with annual increases in line with inflation.

• I would allow any unused annual relief to be carried forward for a period of 4 years.

• I would also suggest that the SFT should be reduced slightly, perhaps to €1.5m (again, with annual increases in line with inflation). I'm conscious that high earning public sector workers, in particular, would resist that particular reform.

• Finally, I think we should revert to the previous position where contributions can be made before deduction of PRSI and USC.
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• In combination, those changes should be broadly neutral (possibly even positive) from the exchequer's perspective but would be much more equitable to all cohorts of taxpayers.