Fears have been expressed about a cut in the tax reliefs for some of those who contribute to a pension.

It comes after proposals were unveiled for how a new auto-enrolment pension plan might operate for workers who have no occupational retirement scheme.

Finance Minister Paschal Donohoe recently sparked fears he will reduce the tax relief on pension contributions in the Budget. The minister had described the current system as "generous".

Some 619,000 people got such tax relief in 2015, the latest date for which data is available.

Most of the contributions paid into pensions enjoy tax relief at the person's highest rate of tax.

So those paying income tax at 40pc get relief at that rate, but those paying tax at 20pc get lower levels of relief. A single person hits the 40pc tax rate on income as low as €34,550. The threshold is €43,550 for married one-earner couples.

The auto-enrolment report issued by Social Protection Minister Regina Doherty's department this week has sparked concern people paying income tax at the higher rate on pension contributions will lose out.

The document refers to introducing an "income neutral" system of State incentives for pension saving.

This would hit middle-income earners hard, as it would basically mean a standard rating tax relief at 25pc, experts said.

The Government has chosen to present this effective 25pc tax relief as a €1 contribution from the State for every €3 contributed by the member.

It has gone for this approach as "the benefits of tax relief are not at all well understood", according to the auto-enrolment proposal.

Moving to a 25pc tax relief for a higher income tax rate person contributing to a pension would effectively mean a €450 tax increase for someone on €50,000 making a 10pc of salary pension contribution.

Any cuts in the pensions tax relief would affect more than 600,000 workers, mainly middle earners.

Pension consultants Mercer warned that higher rate taxpayers would lose out.

Danny Mansergh, head of member communications at Mercer, said: "It seems strange that a policy aimed at increasing the numbers contributing to pensions would expect to do it by reducing tax relief - bearing in mind that the average full-time worker is a higher rate taxpayer, eligible under current rules for 40pc relief.

"It seems likely that this reduced tax relief would also affect members of existing pension plans, many of whom would, as a result, experience a significant drop in net income."

A spokesperson for the Department of Social Protection said further consultation and analysis will be carried out before any final decision is made on tax reliefs.

The 'Roadmap for Pensions Reform 2018-2023' contains a commitment to review the cost of funded supplementary pensions to the Exchequer, the department said.

"This review is in progress and a separate public consultation process is currently being undertaken via the Department of Finance in this regard," it said.

This refers to a committee of public servants, chaired by the Department of Finance, set up to examine contributions relief.

The Interdepartmental Pensions Reform and Taxation Group is due to report by the end of the third quarter, just before the Budget.

The Department of Finance insisted it has no plans to "do away with" marginal relief for pension contributions.

However, the new committee is tasked with looking at the cost of pensions to the Exchequer, as the Government prepares to develop the new auto-enrolment scheme for 2022.

Irish Independent