Vol. 443 No. 7
46 Mr. R. Bruton asked the Minister for Finance if he has assessed the arguments made for changing the tax treatment of pensions so that tax will be paid at the time that contributions to pension funds are made but that payments from pension funds to pensioners will be tax free.
The proposal raised by the Deputy involves a consideration of some of the key factors governing the tax treatment of pension funds. If the proposal were implemented it would mean a radical change in the present arrangements and it is not clear what the end result would be in terms of the impact on the future pensions of the individual employees in funded occupational pension schemes. Those pensioners who would under the existing arrangements and the existing tax law pay little or no tax on their pensions could in fact lose out unless there was some special cross-subsidy provision. The impact on employer costs and on the financial services sector would also need to be carefully examined. From the point of view of the Exchequer there would be an immediate gain in the withdrawal of the tax deductibility of employer and employee contributions but this would be counterbalanced at least in part by the future tax loss from the proposed tax exemption of the pensions. However, there is also the danger that employees might opt out of funded occupation pension schemes which could put major pressure on the State's social welfare pension schemes when those employees reach retirement age. There are indications from at least one other OECD country that the implementation of a similar proposal in the recent past has in fact resulted in employees opting out of funded occupational schemes.
In the light of the above, the Deputy will appreciate that the matter is a very complex one that would require a very detailed and comprehensive analysis including an actuarial study before proceeding any further with it.
