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Irish Pensions Dodge the Bullet in Budget 2009

While the threshold on income tax relief for pensions has been reduced to euro 150,000, there will be many in Ireland letting a huge sigh of relief over the fact that the entire scheme was not reduced to the standard rate of tax.

From next year, the earnings limit on which full tax relief will be available will fall to 150,000 euro from the previous threshold of 275,000 euro.

Minister for Finance Brian Lenihan said: "The Government is concerned that some of the more expensive tax reliefs, especially for the better off, should be scaled back. It is fair and reasonable that those who profited most from the recent good economic times should shoulder a commensurate burden."

Pensions are a key method of reducing a persons overall tax liability which also allows the person to save for the future. While there are many advertising campaigns (government and commercial sponsored) that encourage people to invest in a pension, many people considered that even this holy grail may be attacked significantly in the budget.

There are 3 types of Pensions:

- Personal pensions, which are designed for both self-employed people and for those in non-pensionable employment.
- Occupational pensions, which are provided through employer-sponsored pension schemes.
- State pensions provided under the Social Welfare system.

In defined contribution, also known as 'money purchase schemes', the final pension depends on how much goes in, how it is invested and how the investment performs. Risk is passed from the employer to the employee compared with final salary schemes. However, a money purchase scheme works better for people with fluctuating earnings and for those who often change jobs.

In order to enjoy a similar standard of living in retirement, people need to plan for it. A pension plan is one way of helping people do this, and generally, the earlier a person starts making contributions, the better. Even a short delay can have an impact on the amount a person could receive when they retire but people should still remember that the value of their pension fund can go down as well as up and is not guaranteed. This means that a pension contributor could get back less than they invest.

As it is, there will be a reduction, although nowhere near as significant as had been reported in the general media should be expected.

However, the Minister made it clear that these would not be the last cuts and left the door open for further cuts which could include further restrictions on tax relief for pensions.

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Michael Kelly is Managing Director of Irish Pension Marketing Company Ridge Online Marketing. Ridge Consulting is focused on helping companies improve their online marketing visibility in Ireland. Further information www.mortgage-broker-ireland.com

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