Dáil Éireann debate -
Thursday, 1 Jul 1999

Vol. 507 No. 4

Written Answers. - Social Welfare Pensions.

Noel Ahern

Question:

115 Mr. N. Ahern asked the Minister for Finance the tax rates on old age pensions; if his attention has been drawn to the anger of pensioners at being taxed after their years of effort in contributing to the development of the economy; the further measures, if any, he will take to reduce tax on the elderly in the next budget by introducing a 10 per cent tax rate on all or part income, generously increasing the age allowance and improving exemption limits; and if he will make a statement on the matter. [17087/99]

Minister for Finance (Mr. McCreevy)

It is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. In line with this principle, occupational and social welfare pensions are, therefore, reckonable as income for tax purposes. Treating pension payments as income for tax purposes is essentially a matter of equity.

The extent, if any, to which taxation will actually arise in a given case will essentially depend on the level of income other than the social welfare pension that a recipient has in the same tax year. If there is no other income in addition to the social welfare payment, the existing exemption limits and allowances can be expected to ensure that there is no tax to be paid on the social welfare income itself.

Under the normal income tax system, an individual taxpayer is entitled to have certain allowances and reliefs taken into account in calculating their tax liability. Any income greater than the sum total of the allowances and reliefs is then taxed at 24 per cent and-or 46 per cent as appropriate. Such allowances include the personal allowances (single or married allowances, age allowance, PAYE allowance, blind allowance, etc.) and reliefs such as that for health expenses, medical insurance, qualifying rent relief etc.

Alternatively, if more favourable to the taxpayer, he or she may be taxed under the exemption limits-marginal relief system. Under this system individuals are provided with exemption limits, which are higher than the normal personal allowances, and are taxed at 40 per cent on all income above the exemption limits until their level of income is such that it would be more favourable to be taxed under the normal tax system. However, the exemption limits displace the normal personal allowances and reliefs, including medical insurance relief. For historical reasons people on exemption limits-marginal relief continue to be eligible for mortgage interest relief subject to the usual conditions. It must be stressed that if you are being taxed under the marginal relief system you are in fact paying less tax than if you were being taxed under the normal tax system.

The Deputy will, of course, be aware that those aged 65 and over are treated more favourably under the income tax code than the generality of taxpayers. The exemption limits for those aged 65 and over are significantly higher than those which apply generally. In the last two budgets, I have implemented substantial improvements in the tax treatment of the elderly. In the 1999 budget I introduced a unified income tax exemption limit of £6,500 single-£13,000 married for all those aged 75 and over. This represents an increase of £1,500 single, £3,000 married for those aged 65 to 74 and an increase of £1,000 single, £2,000 married for those aged 75 and over. The new age exemption limit compares favourably with the general exemption limits of £4,100 single-£8,200 married. The large increase in income exemption limits for the elderly announced in budget 1999 will remove 15,000 elderly persons from the tax net.

Where pensioners aged 65 and over are taxed under the normal personal allowance tax system they are eligible for the special age allowance of £400 single-£800 married, which is in addition to the normal personal allowances. While the age allowance was not increased in budget 1999, it was not standard rated and is still allowable at the taxpayer's marginal rate of tax. As regards elderly people taxed under the normal tax system, they will benefit from the general tax improvements introduced in the last two budgets i.e the standard rating of the main personal allowances and the PAYE allowance; the increase in the personal allowances of £1,300 single-£2,600 married to £4,200 single-£8,400 married; the increase in the PAYE allowance of £200 to £1,000; the widening of the standard band by £4,100 single-£8,200 married and the 2 per cent reduction in both the standard and top income tax rates.

The threshold for payment of the levies has been increased by £1,000 over the two budgets, from £10,250 to £11,250. In addition, the levies were restructured, with the abolition of the 1 per cent employment and training levy, and the increase in the 1.25 per cent health levy to 2 per cent, resulting in a reduction of 0.25 per cent in the combined levy charge.

I am of course aware of the concerns of pensioners with regard to taxation and the tax position of the elderly will, of course, be borne in mind in the context of future budgets.