This article by Brian O’Mahony first appeared in the Irish Examiner on 18th May 2006
The introduction of a pensions cap on high earners in the last budget will make it extremely difficult for firms to put attractive wage structures in place for key executives, PricewaterhouseCoopers (PwC) warned yesterday.
PwC said that companies would have to become very creative in finding ways to make up for the tax on pensions worth over €5 million to individuals.
The 2006 Finance Act introduced an additional tax on pension funds with a value of more than €5m (unless an individual receives certification from Revenue that a higher limit applies).
Any excess over this cap is liable to an additional tax of 42%, typically payable when an individual reaches retirement, which is effect will work out as double taxation the consultancy group said.
PwC issued its statement in advance of today’s Chartered Institute of Personnel & Development 2006 conference in Killarney.
In effect companies who want to retain key executives in their organisations will have to come up with equally tax-efficient, low-risk solutions to reward key senior executives if they want to hold on to them long term, said Munro O’Dwyer, senior actuary and director at PwC.
The difficulty is that defined benefit pensions have proved a very valuable and low risk method of putting additional incentives in place for leading executives, he said. With the €5m cap on pensions dynamic young executives with bright prospects before them wold not be that long into their careers before a pension of two thirds of their salary will push them beyond the €5m figure.
However, Mr O’Dwyer added: "If enough money is thrown at the problem then solutions can be found."
© Irish Examiner, 2006. Thomas Crosbie Media, TCH
