Tax Reliefs Application

Dáil Éireann Debate, Tuesday - 6 November 2012

Tuesday, 6 November 2012

Questions (215, 221)

Pearse Doherty

Question:

215. Deputy Pearse Doherty asked the Minister for Finance his views on the assertion made by the Irish Association of Pension Funds, where it claims that the Programme for Government outlined the States intention to apply a cap of €60,000 on pensions that receive State support; anyone who wants and can afford a pension income in excess of €60,000 can then provide for it themselves through unsupported savings, the vast majority of ordinary pension savers, 98%+, will continue to be unaffected as they are average workers saving average amounts, the introduction of this measure could ensure the same rules apply to all those saving for retirement - whether they public servants, private sector workers or the self-employed; critically, this measure will save the State over €400m per annum and enable it to exceed the revenue target set for the pensions sector; the impact will only be felt by approximately 27,000 higher paid taxpayers rather than the 555,000 that would be hit by a change to the marginal rate of tax relief; those affected are employees typically earning in excess of €125,000 per annum, to state whether the assertion is correct; if the figures tally with his Department's figures; the way this €60,000 cap would apply; and if the Government is considering implementing such a proposal. [47486/12]

Aengus Ó Snodaigh

Question:

221. Deputy Aengus Ó Snodaigh asked the Minister for Finance his views in relation to comments (details supplied) regrding a pensions cap for the purposes of tax relief; if he will explain how this would work;and if this approach is being considered instead of reducing tax reliefs as was provided for in the National Pensions Framework. [47778/12]

Written answers

Minister for Finance

I propose to take Questions Nos. 215 and 221 together.

Officials of my Department and the Revenue Commissioners have for some time been engaged in a process with representatives of certain of the professional stakeholders in the pensions sector, including the Irish Association of Pension Funds, about the potential for securing savings in the area of supplementary pension reliefs implicit in the EU/IMF agreement. That engagement is ongoing.

Research carried out on behalf of these stakeholders leads them to suggest, in broad terms, that changes to the existing maximum allowable pension fund for tax purposes at retirement (the Standard Fund Threshold - SFT) affecting individuals on earnings of over €125,000 per annum would deliver savings broadly equivalent to what would be achieved by reducing marginal rate tax relief on employee pension contributions to the standard rate while impacting on a much smaller number of taxpayers.

I would point out that the scale of pension saving reliefs available to higher earners, in particular, has been significantly restricted over recent years. Aside from the reduction in the SFT from over €5.4 million to €2.3 million in the budget and Finance Act 2011, the annual earnings cap which operates in conjunction with age-related percentage limits to determine the annual amount of tax-relievable contributions that can be made by an employee or individual to pension savings has been reduced from over €275,000 in 2008 to its current level of €115,000 per annum. This means that higher earners can only benefit from tax relief on their pension contributions on a percentage of their earnings (based on age) up to €115,000 per annum which is already below the earnings level being targeted in the research referred to in the question. The report on the research is being examined.

The debate around the incentive regime for pension saving has tended to focus either on a further reduction in the maximum allowable pension fund for tax purposes at retirement or on a reduction in the rate of tax relief on pension contributions. These approaches are not, of course, mutually exclusive. In my 2012 budget speech in December last, I said that I did not propose to make changes to the existing marginal rate relief at that time but that the incentive regime for supplementary pension provision will have to be reformed to make the system sustainable and more equitable over the long term. I said that my Department and the Revenue Commissioners would work with the various stakeholders in the next year to develop workable solutions. On foot of this, a broad informal consultation was undertaken this year across a spectrum of stakeholders in the pensions sector, in addition to the professional stakeholders mentioned earlier, to establish their views on further changes to the incentive regime for pension saving.

I will give due consideration to the views of all interested parties in the pensions sector in the context of any proposals I may make to Government regarding the incentive regime for pension saving.