In light of the anticipated reduction in the pension funding limit to €60,000 per annum from 2014, PwC today launches a new survey to assess the awareness of pension savers of this proposed change – and how Employers are preparing to react.
Many employers expect a significant increase in the number of individuals impacted. However, they believe that the majority of people who are impacted are unaware there is an issue. Given how highly pension continues to be rated within the remuneration package, companies will want to resolve this issue quickly. It clearly represents a challenge for HR and Finance Departments within the next few months to raise awareness and formulate solutions.
Since the limit was last reduced to €2.3m in 2010 it has not been subject to indexation while the average managed fund has grown on average by in excess of 20%* in the same period. For many individuals at the limit in 2010 they probably now have built up exposure to what might be the single largest tax bill in their lives.
We hope the Budget gives clarity on how the new limits will operate to make it easier for those impacted to plan for their retirement. Additionally, tax certainty going forward will improve confidence generally within the pensions system.
Key findings in the survey included:
Donal Keating, Senior Manager, PwC Pension Solutions Group, said:
“When the pension limit was last reduced in 2010 to €2.3m the number of individuals impacted within organisations was typically no more than a handful. These were the most senior employees and consequently employers generally constructed alternative solutions on a bespoke basis.
When the reduced limits take effect from 2014 the impact will be much more wide reaching. There is a challenge for companies to create solutions which enable affected employees to accumulate and access pension benefits in a tax efficient manner. A reduction in limits will also present an opportunity for organisations to reduce the level of benefits accruing in their Defined Benefit (DB) schemes through offering employees the choice to opt out for future service.”
Other key findings in the survey include:
Alan Bigley, PwC HRS & Pensions Partner, added:
“Budget 2014 is expected to put in place measures to cap subsidies for pension funds delivering an income of over €60,000 per annum. This reduction will potentially affect over 30,000 pension savers and will prove a significant HR and Pensions issue for many employers in 2014. The increased scale of the issue is likely to lead employers towards structuring tax efficient alternatives which would be applicable to all affected staff either now or in the future. There is real value for organisations in being pro-active in alerting affected employees in relation to the issue at the earliest possible juncture”.
Notes to Editor:
PwC today launches its latest Budget 2014 pension funding limit changes Survey report – examining the impact of these changes on Irish businesses and individuals. This survey also ascertains the level of awareness of the issue among both employers and affected employees and examines the likely supports which will be provided to those who are impacted.
The survey was undertaken in late August 2013 amongst the HR, Pensions and Finance Leaders across a wide range of sectors in Ireland including banking, insurance, fast moving consumer goods, pharmaceutical & medical devices, technology, retail, construction and public sector. A total of 328 organisations participated in the survey.
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