IRELAND - The Irish government has placed an effective cap on the maximum contributions to pension schemes which could present problems for the self-employed and people who have yet to begin pension savings, the pensions industry has warned.

Brian Lenihan, the minister for finance, announced yesterday in his Budget speech for 2009 the annual earnings limit for pension tax relief purposes will be reduced from the 2008 limit of €275,239 to €150,000 in 2009.

A summary of the taxation measures introduced in the Budget 2009 also confirmed there will be no adjustment in 2009 to the maximum thresholds for pension funds on retirement in line with an earnings index, and together the two changes would save the Irish government "€45m in 2009 and €100m in a full year".

However, the changes to the earnings limit for tax relief has sparked claims from the pensions industry that self-employed people and workers earning over €150,000 who have delayed their pension savings will be "disadvantaged".

Ian Mitchell, managing partner at Deloitte Pensions & Investment, claimed the Budget measures "widen the gap" between the pension provision available to self-employed workers and those who are members of employer-sponsored pensions schemes in both the private and public sector.

"This creates an unfair system for those who are self-employed, because employer contributions to pension schemes are not similarly restricted," said Mitchell.

"Similarly, those earning over €150,000 who have delayed their pension planning will also be caught on the back foot. This points to a need to consider simplifying the system in a similar fashion to the system that has been adopted in the UK, which allows everyone to contribute to the maximum cap irrespective of earnings," added Mitchell.

The Irish government had been reviewing all areas of relief, taxation and incentivisation, including pension relief, prior to the Budget speech, although the Irish Association of Pension Funds (IAPF) noted "the key to current government thinking must be the objectives of the green paper on pensions", which is designed to increase the adequacy and coverage of second pillar pensions.

Patrick Burke, chairman of the IAPF, said against this backdrop, the organisation is satisfied with the "recognition of the value of the current system which this budget effectively gives".

He added, however: "We note the reduction in maximum contribution levels introduced by the earnings cap and recognise this could present some difficulties for those who may be late in coming to fund their pensions."

Burke said the IAPF intends to "look to the detail of the Finance Bill when it is published to see if the reasonable objective of ensuring that even those who come late [to pension saving] to improve their post retirement position might be addressed".

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