Sandra Rockett, head of Pensions Advisory Services with Davy gives her reaction to Budget 2014.
Generally speaking most of the changes have been flagged well in advance of today with the exception of the introduction of a new pension levy. Overall the government has continued to support people saving for their retirement through tax relief but at the same time limiting the level of tax relief given to higher earners.
There are a number of positive aspects to the announcement today: The government has maintained marginal tax relief on pension contributions to provide a pension of up to €60k and for most people their pension lump sum in retirement will continue to be paid tax free up to a limit of €200k.
However, for higher earners pensions of over €60k will no longer benefit from tax relief which is equivalent to a maximum pension pot of €2m at retirement down from €2.3m.
For those individuals who would be able to take a higher lump sum it is likely that they will see a reduction to the maximum lump sum limits in line with the reduction in the maximum pension pot.
Perhaps the most disappointing and surprising announcements today was the increase in the pension levy to 0.75% for 2014 and the extension of a levy of 0.15% on all pension funds for 2015.
One of the key aspects that has not been addressed in this budget is the need for people to start contributing to their pensions at a younger age. It’s disappointing that the government has not introduced measures to make pensions more attractive for people at younger ages. For example, by providing some level of access to your pension fund before retirement in certain circumstances
So overall higher earners continue to see further restrictions on tax relief and the big news today is the increase and the extension of the pension levy despite government assurance to the contrary.