Lower pension fund threshold, says ESRI

The standard fund threshold for pensions should be reduced sharply, a report published today by the ESRI suggests.

The study by Gerard Hughes of the TCD Pension Policy Research Group says the lifetime pension fund threshold, which currently stands at €2.3 million, should be cut to just €622,000.

It also calls for a cap on the earnings that can be used in any year to claim pension tax relief to be set at €75,000. At present, people can claim relief contributions based on earnings up to €115,000.

The recommendations follow a study by Prof Hughes of pension provision for company directors and ordinary employees, based on The Irish Times Top 1000 Companies list in 2009 in conjunction with stock exchange listings.

Analysing pension allowances to executive directors at 48 companies on both lists, he found that 45 per cent of the listed businesses offered only defined benefit (final salary schemes) to executive directors.

Only 8 per cent of the companies on the same list provided the defined benefit only option for employees outside the boardroom. Defined benefit schemes, which promise to pay a proportion of final salary determined by years of service, are seen as the most favourable pension option.

Almost 70 per cent of companies in the survey have both defined benefit and defined contribution schemes – where the pension is determined by the contributions and investment performance – for employees; 28 per cent do the same for executive directors. The balance offer only defined contribution schemes .

“Proportionately, more executive directors continue to enjoy access to a [defined benefit] scheme which is generously funded by their employer who bears the risk of poor performance of the fund,” Prof Hughes states.

He finds that executive directors also have far more favourable pension terms than other employees.