Most of you will know by now the basics of the proposals set out in the Governments 4 Year plan in relation to pensions. They have targeted the pension industry to raise €700 million over the period of the Plan. They have indicated that;

• Relief against PRSI and Health Levy on pension contributions is being removed from 2011
• Tax-free payments in excess of €200,000 will be taxed from 2011 (tax rate not announced).
• Tax relief on pension contributions will remain at 41% in 2011. This is good news as it means pension contributions for 2010 and 2011 tax years will still attract higher tax relief.
• It is proposed to reduce pension tax relief from 41% to 20% , on a phased basis, from 2012 to 2014
• The annual earnings cap is being reduced from €150,000 per annum to €115,000 in 2011.

Firstly it is important to note that the lowering of tax relief, if it is approved, will only affect those making personal contributions to pension. For individuals whose company is making the contribution to pension on their behalf, the effective tax relief will remain at their marginal rate.

Secondly I would encourage anyone who is currently paying income tax at the 41% rate to consider increasing personal contributions to pension for the next two years to maximize the tax relief available now.