Written Answers Nos. 233-253
233. Deputy Mary Lou McDonald asked the Minister for Finance if section 18 of the Finance (No. 2) Bill 2013 favours senior public servants; and if this legislative provision skews the rules to ensure high earning public servants are able to keep large pension entitlements amassed to date. [47065/13]
View answer234. Deputy Mary Lou McDonald asked the Minister for Finance if application of section 18 of the Finance (No. 2) Bill 2013 will result in senior public sector employees and high paid private sector employees in a defined benefit pension scheme being excluded from the standard funding threshold until 2054. [47066/13]
View answer235. Deputy Mary Lou McDonald asked the Minister for Finance if section 18 of the Finance (No. 2) Bill 2013 provides for a 70% super tax for private sector pensions that deliver income up to €60,000 per annum. [47067/13]
View answer236. Deputy Mary Lou McDonald asked the Minister for Finance if he will set out pension tax reliefs for public sector and private sector employees noting any difference between the two. [47068/13]
View answerI propose to take Questions Nos. 233 to 236, inclusive, together.
As occurred on the occasion of the introduction of the SFT regime in 2005, and again when the value of the SFT limit was reduced to €2.3m in 2010, the legislation contained in the Finance Bill provides for an individual who has pension rights on 1 January 2014 in excess of the new lower SFT limit of €2m, to claim a Personal Fund Threshold (PFT) from Revenue in order to protect or “grandfather” the value of those rights on that date. This is subject to a maximum PFT of €2.3m, and individuals with PFTs from 2005 or 2010 retain those PFTs.
As before, the pension fund protection or “grandfathering” provisions contained in the legislation reflect legal advice from the Attorney General. However, unlike previous occasions, the grandfathering arrangements this time around had to take cognisance not just of the reduction in the absolute level of the SFT from 1 January 2014, but also of the increase, from that date, in the factors for converting DB pension rights into capital value equivalents. It is for that reason, lest there be any suggestion that the changes had retrospective application, that DB rights accrued up to 1 January 2014 are to be capitalised at the existing valuation factor of 20, both for the purposes of determining if there is a PFT and for the purposes of placing a capital value on those rights at the time of retirement, where that takes place after 1 January 2014.
The changes and grandfathering arrangements outlined above apply, as appropriate, to both DB and defined contribution (DC) pension arrangements in both the private and public sectors. As regards DB pension arrangements, it is irrelevant whether an individual is a higher paid civil servant, a Minister or a highly paid member of a private sector DB scheme; the same SFT rules apply to all such arrangements.
Specifically, the new lower SFT limit will apply to both DC and DB arrangements. Those in DC pension arrangements can seek a PFT from Revenue if the capital value of their arrangements exceeds €2m on 1 January 2014, subject to a maximum PFT of €2.3m. If the value of their DC pension arrangements is below the SFT on 1 January 2014, their funds can continue to accumulate up to €2m through further tax-relieved pension contributions and fund growth, subject to the various annual contribution and earnings limits that apply, without any risk of a chargeable excess arising. Members of DB pension arrangements can equally aspire to a maximum “tax–relieved” fund of €2m. However, in the case of DB pension arrangements, members of such arrangements do not have individual “earmarked” funds (as is the case in DC arrangements) and this, coupled with the fact that pension benefits in such arrangements reflect a “benefit promise” based on salary and service, dictates that the capital value of pension rights arising under such arrangements has to be determined in some other way.
The SFT regime provides (and has always provided) a simple formula for this purpose. The formula essentially requires the annual amount of pension payable to an individual under the arrangement to be multiplied by a valuation or capitalisation factor in order to establish the capital value, both for PFT purposes and for the purposes of establishing the value of DB pension rights at the point of retirement. Up to now, a single valuation factor of 20 has been used for these purposes. In light, however, of the major criticism levelled at the existing SFT regime, that the fixed rate conversion factor of 20:1 was inequitable relative to DC pension arrangements given the higher market annuity rates that those with DC pension arrangements could face if they were to purchase annuities, I have moved to introduce higher age-related factors. This will substantially improve the equity between DC and DB arrangements and as between those who retire at younger ages and those who retire later in life. These are significant changes.
The value of DB pension rights accrued up to 1 January 2014 will, under the grandfathering requirements, be valued for the purposes of the SFT regime at the existing factor of 20. If the capital value so determined exceeds the new lower SFT limit of €2m, such individuals may seek a PFT from Revenue, subject to the overall limit of €2.3m referred to earlier. In such cases, additional pension benefits accrued after 1 January will be valued using the relevant higher age-related factor and will, as for DC arrangements, be fully exposed to chargeable excess tax. Where the capital value of DB rights is less than €2m on 1 January, such individuals may continue to accrue pension rights up to the SFT limit but those additional rights will be valued at the relevant higher age-related factor.
I am not clear on the relevance of the reference to 2054 in the Deputy’s questions. The revised SFT regime applies across the board with effect from 1 January 2014. As outlined above, however, whether, and the extent to which the new SFT regime will have tax consequences for an individual in a DC or DB pension arrangement will depend, among other things, on the value of his/her pension savings or entitlements on 1 January 2014, having regard to the grandfathering requirements and on the extent to which such individuals continue to contribute to their pension arrangements or to accrue additional pension benefits after that date. In any situation where the SFT or an individual’s PFT is exceeded, tax consequences will ensue.
On each occasion that an individual becomes entitled to receive a benefit under a pension arrangement for the first time (called a “benefit crystallisation event” or BCE) they use up part of their SFT or PFT, as the case may be. When the capital value of a BCE, either on its own or when aggregated with earlier BCEs, exceeds the SFT, or an individual’s PFT, the excess is subject to an immediate tax charge of 41%, which has to be paid upfront by the pension fund administrator and recovered from the individual. In addition, when the remainder of the excess is subsequently drawn down as a pension (or, for example, by way of a distribution from an Approved Retirement Fund or vested Personal Retirement Savings Account) it is also subject to tax at the individual’s marginal rate, thus giving rise to an effective income tax rate on a chargeable excess of some 65%, excluding any liability to USC and PRSI. In this way, the SFT regime addresses the problem of pension overfunding and excessive pension accrual by imposing a penal effective tax charge on the value of retirement benefits above set limits when they are drawn down, thus discouraging the building up of large pension funds in the first place or unwinding the tax advantage of such overfunding.
Finally, as regards pension tax reliefs for public sector and private sector employees, the position is that income tax relief is provided on pension contributions made by such employees at their marginal tax rate, subject to an annual earnings cap which operates in conjunction with age-related percentage limits. The maximum amount of annual tax-relieved pension contributions that an employee can make to pension arrangements is restricted on a graduated basis rising from 15% of their annual earnings up to age 30 to 40% of annual earnings at age 60 and over. This is subject to an overall earnings cap of €115,000 per annum above which no relief on pension contributions as a percentage of earnings is given. The relief and the annual tax-relieved contribution limits apply across-the-board to all employees, regardless of whether they work in the public or private sectors.
237. Deputy Thomas P. Broughan asked the Minister for Finance the position regarding claims that the former Anglo Irish Bank overcharged customers who held loans with the bank; and if all claims of this nature have been fully resolved. [47069/13]
View answerThe Special Liquidators have confirmed that Irish Bank Resolution Corporation Limited (the “Bank”) identified in June 2010 that it had a customer overcharging issue (i.e. there had been a difference between the interest rate charged to customers and the interest rate documented in the corresponding loan facility agreements) on customer loan accounts in the Republic of Ireland, US, Isle of Man and UK jurisdictions.
I have been advised by the Special Liquidators that in July 2010 the Bank established an internal steering committee to oversee a forensic investigation into the circumstances surrounding this overcharging issue and to ensure that affected customers were fully refunded the overcharge amount together with appropriate compensation.
The Steering Committee informed the appropriate Regulatory Authorities of the issue and these Authorities were updated on the progress of the internal investigation.
A report on the forensic investigation was delivered to the Board of the Bank, and the Regulatory Authorities in December 2010. It identified overcharging affecting the majority of variable rate customer loan accounts in ROI, the Isle of Man and the US in the period from 1st of January 1990 to 31st July 2004. It further identified that approximately 25% of variable rate customer loan accounts in the UK were overcharged in the period from 1st September 1991 to 30th June 2005.
Project teams within the Bank calculated the amount of interest overcharge and compensation for every affected customer. Refunds plus compensation cheques were made available to affected customers in ROI, the US, the Isle of Man and the UK by the end of Q1, 2012. The Special Liquidators can confirm that the total amount overcharged to customers was €45m.
Unfortunately I am not in a position to comment directly on cases currently in before the Courts. I have been advised by the Special Liquidators that in the Republic of Ireland any claims made in relation to the potential overcharging of interest would likely rank as unsecured creditors in the liquidation.
238. Deputy Mary Lou McDonald asked the Minister for Finance if he will provide in tabular form the partial year and the full year monetary effect of his Department's budget 2014 reductions to expenditure. [47077/13]
View answerThe Department of Finance is not in a position to achieve any further savings in 2014. I refer the Deputy to my previous answer to Parliamentary Question number 44746/13, as outlined below.
The Department of Finance’s budget and staffing allocation reflects ongoing ambitious objectives and goals, across a broad spectrum of economic, fiscal, financial and international policies, set out in its Statement of Strategy. This is particularly important as we target an exit from the EU/IMF programme of support and the Government has recognised this in the ECF numbers and resources allocated to the Department.
Notwithstanding this, my Department has achieved considerable economies in a number of areas through, for example, the abolition of payable orders, efficiencies in accommodation footprint, and process improvement efficiencies. The full extent of these efficiencies is not immediately obvious because the Department has taken-on additional clients in the shared services area (these services are not recharged to the clients) and premises lease savings will accrue to the Office of Public Works vote.
During the course of 2014 my Department will incur once-off funding costs in relation to a number of policy areas, including the Government approved National Payments Plan project. We have also included an estimate for legal fees related to actions linked to the banking sector. These additional costs exceed the various cost savings expected to be achieved in 2014 relating to improved work practices.
Question No. 239 answered with Question No. 143.
240. Deputy Róisín Shortall asked the Minister for Finance if the liable person listed on a local property tax database will be altered to the other listed owner (details supplied) in Dublin 11. [47102/13]
View answerI am advised by Revenue that the Local Property Tax (LPT) record of the person in question has been adjusted and the liable person has been altered as indicated by the Deputy. The delay in completing the alteration from the original listed owner to the ‘other owner’ occurred because the PPS numbers of both persons needed to be matched and aligned on the Revenue record. Up to the commencement of LPT neither PPS number was listed on Revenue’s IT system and were only operational on the Department of Social Protection (DSP) IT system.
Revenue has advised me that the necessary data matching was not completed in time to impact on the correspondence issued in respect of LPT 2014 and for that reason the notification issued in the name of the original owner. However I am assured that all future communications will issue in the name of the amended owner.
241. Deputy Róisín Shortall asked the Minister for Finance his estimate of the yield to the Exchequer in terms of additional universal social charge revenue arising from the budget 2014 decision to revoke medical cards awarded on the basis of returning to work having been long-term unemployed. [47105/13]
View answer242. Deputy Róisín Shortall asked the Minister for Finance his estimate of the number of persons brought into the standard rate of universal social charge arising from the budget 2014 decision to revoke medical cards awarded on the basis of returning to work having been long-term unemployed. [47106/13]
View answerI propose to take Questions Nos. 241 and 242 together.
The position is that there is no general exemption from Universal Social Charge (USC) for individuals in possession of a full medical card. However, the maximum rate of USC charged for individuals who hold full medical cards and whose income does not exceed €60,000 is 4%. This applies in place of the normal 7% rate of USC that is charged on income exceeding €16,016.
I am advised by the Revenue Commissioners that as medical cardholders are not generally separately identified on tax records there is no statistical basis on which an estimate could be compiled of the yield to the Exchequer from any additional universal social charge that might arise from the revoking of medical cards on returning to work after long-term unemployment.
243. Deputy Róisín Shortall asked the Minister for Finance his estimate of the number of persons that would be brought into the income tax net if his proposal to abolish the one-parent family tax credit is approved by Dáil Éireann; and the number in each income category starting at an annual income of €16,000 and at intervals of €2,000. [47107/13]
View answer244. Deputy Róisín Shortall asked the Minister for Finance his estimate of the number of persons that would be brought into the higher band of income tax if his proposals in relation to the tax treatment of separated parents are approved by Dáil Éireann. [47108/13]
View answerI propose to take Questions Nos. 243 and 244 together.
I am advised by the Revenue Commissioners that based on the most up to date data it is estimated that up to 15,400 individuals may be affected by the restriction of the restructured credit to the principal carer. In addition, it is tentatively estimated that about 5,550 of the estimated 15,400 individuals affected will now become liable to the higher rate of income tax i.e. 41% on a portion of their income, while a further 3,980 are expected to be brought in to the income tax net, i.e. liable to pay income tax at standard rate of tax on a portion of their income as a result of this measure. However, ultimately it will depend on the circumstances of each individual carer.
I am also informed by the Revenue Commissioners that as the individuals who are likely to be affected by the Budget changes are not specifically identifiable on Revenue tax records the statistical basis for measuring the impact of the changes was an estimate of aggregated numbers which were not income specific. Accordingly, there is no basis on which a precise distribution of these individuals by income range could be compiled.
245. Deputy Róisín Shortall asked the Minister for Finance his estimate of the number of policies and persons affected by the tax changes announced in budget 2014 in relation to tax relief on medical insurance if there was an across the board 10% rise in health insurance premiums in 2014. [47109/13]
View answerI am advised by the Revenue Commissioners that based on 2012 data, the most up to date data available, it is estimated that up to 577,000 policy holders, which provide cover for 1.1 million individuals, may be affected by this measure. The Revenue estimate is based on an analysis carried out on the annual returns and the gross premium prices (i.e. before tax relief at source is applied) submitted by the Health Insurers in respect of the 2012 tax year. However, it should be noted that many will only be affected marginally, depending on the cost of the policies that individuals purchase.
The issue of pricing of insurance premiums is a matter for insurers. However, Revenue has further advised that if a 10% increase in health insurance premiums was applied to these figures it would result in some 653,000 policy holders, which equates to just fewer than 60% of all policies, and just under 1.3 million individuals, being affected by the measure.
However, this estimate assumes no behavioural changes on the part of claimants, and a 10% increase in health insurance premiums may have a significant behavioural impact and may not produce the nominal impact indicated. For example, individuals can opt for less expensive policies and therefore reduce the impact of the Budget measure or avoid it entirely.
246. Deputy Finian McGrath asked the Minister for Finance his views on correspondence (details supplied) regarding a matter for the Revenue Commissioners. [47126/13]
View answerThe administration of Stamp Duty is a matter for the Revenue Commissioners. The Ministers and Secretaries (Amendment) Act 2011 put the independence of the Revenue Commissioners in the performance of their functions on a fully statutory basis.
I am advised by Revenue that there has been ongoing correspondence with the solicitor representing the persons concerned relating to an outstanding Stamp Duty issue. The most recent Revenue letter in this regard was dated 18 October 2013, and set out in detail the issues relating to the purchase of the property in question.
The persons concerned are the accountable persons for Stamp Duty purposes. The late payment of Stamp Duty in the case has incurred penalties, which comprise daily interest, a statutory fine and a late payment surcharge. These statutory charges are imposed in respect of late Stamp Duty payments. They are designed to compensate the Exchequer for loss of revenue, to encourage timely payments and to ensure equity for the majority of taxpayers who pay their taxes and duties on time.
The evidence in this case is that a claim was made for a Stamp Duty relief to which the purchasers had no entitlement. I understand Revenue has, however, noted the background to the case relating to a former legal practice.
I am advised that the Revenue Commissioners are prepared to consider a review of the imposition of penalties in the case, if additional evidence is produced to warrant such a review. Should the persons concerned wish to pursue this, they may contact Ms. Michelle Murphy, Revenue National Stamp Duty Office, Dublin Castle, Dublin 2 (Tel. 01.8689306).
247. Deputy Michael Healy-Rae asked the Minister for Finance the latest estimates of the amount of illegal tobacco being sold here every year; if he will confirm the Government estimates that 20% of all cigarettes sold here are counterfeit; and if he will make a statement on the matter. [47129/13]
View answerI am advised by the Revenue Commissioners that they do not accept that the illicit tobacco market comprises 20% of the total market, as suggested by the Deputy. Revenue is satisfied, based on a 2012 survey of smokers carried out by IPSOS MRBI on behalf of Revenue and the National Tobacco Control Office of the HSE, that 13% of all cigarettes consumed are illicit, and that a further 6% are legally brought into the country.
I am advised that a similar survey is under way for the current year and that it is anticipated that the results will be available in the first quarter of next year.
I am aware that there are other estimates of the incidence of illicit tobacco products in the Irish market. However, Revenue considers the figures from the IPSOS MRBI survey to be the most reliable, on the basis of the methodologies used, the consistent manner in which the surveys have been undertaken over a number of years and because the survey distinguishes between legal personal imports and illicit cigarettes. The surveys are geographically representative and also take social class, age, gender and nationality into account.
For the information of the Deputy, the illicit cigarette market comprises not only counterfeit cigarettes, but also illicit whites which are brands primarily manufactured for the illicit market and also regular brand cigarettes purchased in lower tax jurisdictions and illegally imported to Ireland. In the 2012 IPSOS MRBI survey approximately 2% of the 13% classified as illicit product were counterfeit.
I am also advised by the Revenue Commissioners, who are responsible for the collection of Tobacco Products Tax and for tackling the smuggling and sale of illicit tobacco products, that they view this criminal activity as a very serious matter. Accordingly, combating the illegal tobacco trade is, and will continue to be, a high priority for them. Revenue’s “Strategy on Combating the Illicit Tobacco Trade (2011-2013)” includes a wide range of measures that are designed to identify and target those engaged in the supply or sale of illicit tobacco products, with a view to seizing the illicit products and prosecuting those responsible. This multi-faceted strategy includes ongoing analysis of the nature and extent of the problem, developing and sharing intelligence on a national, EU and third country basis, ongoing review of operational policies, the use of analytics and detection technologies, and ensuring the optimum deployment of resources at both point of importation and within the country.
248. Deputy Róisín Shortall asked the Minister for Finance the estimated number of persons who will be affected by the change to the SFT regime in 2014; and the basis for the estimate of a yield of €120 million from this measure. [47131/13]
View answer249. Deputy Róisín Shortall asked the Minister for Finance the impact of the proposed budget 2014 changes to pension tax relief for persons who have already achieved a pension pot of €2 million; and if he will confirm that no further tax relief will apply to additional pension contributions in these cases. [47132/13]
View answer250. Deputy Róisín Shortall asked the Minister for Finance the reason he chose to change the SFT rather than capping pension tax relief in view of the fact that the approach he proposes will discriminate in favour of high earning public servants; his views from the point of view of tax treatment; and if he will make a statement on the matter. [47133/13]
View answerI propose to take Questions Nos. 248 to 250, inclusive, together.
It is difficult to be definitive about the number of individuals that may be affected by the changes to the Standard Fund Threshold (SFT) regime. Among other reasons, this is because the changes are likely to have both direct impacts and indirect behavioural impacts. The direct impacts will be on individuals whose pension savings or entitlements will be in excess of the reduced SFT on 1 January 2014 (and who may seek a Personal Fund Threshold (PFT)) and those whose pension savings or entitlements may be below the threshold on that date but, with future contributions or accruals, may exceed the threshold in time. For both of these groups where the SFT or PFT is exceeded at the point of retirement, chargeable excess tax will arise. However, the changes are also likely to mean that individuals (generally in the private sector) who may otherwise be affected by the amendments to the SFT, and who have the flexibility to do so, may change behaviour and opt out of additional pension saving or pension accrual, in circumstances where they can obtain compensatory payments from their employer, in order to avoid breaching the SFT or their PFT. Overall, the changes could potentially impact, both directly and indirectly, on up to 10,000 individuals in the short to medium term.
The estimated yield from the changes to the SFT regime is expected to arise in two main ways. Firstly, from the cessation of tax-relieved contributions to pension saving from those employees and individuals in the private sector affected in the short to medium term by the changes and secondly by the conversion, to some degree, of employer pension contributions and pension promises in respect of those employed individuals into compensatory current taxable remuneration. In addition, some of the yield will also arise from affected individuals who remain in pension arrangements and continue to contribute to them or accrue benefits under them, and will take the form of chargeable excess tax payable at retirement where their SFT or Personal Fund Threshold (PFT), as appropriate, is exceeded. This increased tax will effectively claw back any tax subsidy which helped fund the excess over the SFT or PFT.
An individual who has pension savings or pension rights on 1 January 2014 in excess of the new lower SFT limit of €2 million may claim a Personal Fund Threshold (PFT) from Revenue in order to protect or “grandfather” the value of those rights on that date. This is subject to a maximum PFT of €2.3m (i.e. the value of the current SFT). For such an individual, any further pension contributions or pension accrual will give rise to a chargeable excess in due course. If the value of an individual’s pension arrangements is below the SFT on 1 January 2014, they can continue to accumulate up to €2 million through further tax-relieved pension contributions and/or pension accrual (subject to the various annual pension contribution and earnings limits that apply) without any risk of a chargeable excess arising.
On each occasion that an individual becomes entitled to receive a benefit under a pension arrangement for the first time (called a “benefit crystallisation event” or BCE) they use up part of their SFT or PFT, as the case may be. When the capital value of a BCE, either on its own or when aggregated with earlier BCEs, exceeds the SFT, or an individual’s PFT, the excess is subject to an immediate tax charge of 41%, which has to be paid upfront by the pension fund administrator and recovered from the individual. In addition, when the remainder of the excess is subsequently drawn down as a pension (or, for example, by way of a distribution from an Approved Retirement Fund or vested Personal Retirement Savings Account) it is also subject to tax at the individual’s marginal rate, thus giving rise to an effective income tax rate on a chargeable excess of some 65%, excluding any liability to USC and PRSI. In this way, the SFT regime addresses the problem of pension overfunding and excessive pension accrual by imposing a penal effective tax charge on the value of retirement benefits above set limits when they are drawn down, thus discouraging the building up of large pension funds in the first place or unwinding the tax advantage of such overfunding.
The changes and pension fund protection arrangements outlined above apply, as appropriate, to both defined benefit (DB) and defined contribution (DC) pension arrangements in both the private and public sectors. In that regard, I reject the intimation in one of the questions that the approach of changing the SFT regime was chosen because it discriminated in favour of high earning public servants. Various alternative options for restricting taxpayer subsidies to large pensions, including input controls on contributions, were considered and rejected. While not perfect, output controls such as the existing maximum allowable pension fund at retirement for tax purposes (the SFT) are arguably just as effective at capping taxpayer subsidies and curbing excessive tax relieved pension savings. Moreover, the SFT approach has the added advantage of amending a system that is already in place and familiar to pension and tax practitioners alike and while the changes I am making will unavoidably add complexity to the existing system, it is in my view much less complicated than what a further separate input control approach would have involved.
251. Deputy Róisín Shortall asked the Minister for Finance further to Parliamentary Question No. 81 of 24 October 2013, if he will publish the analysis which he claims reveals significant downside risks to the achievement of the projected €250 million in savings by capping pension tax relief as indicated in budget 2014. [47134/13]
View answerThe analysis to which I referred in my response to the Deputy’s previous question of 24 October last represents internal work carried out by my Department on savings/yield estimates prepared by private sector sources arising from proposals for suggested changes to the Standard Fund Threshold regime. While I will give consideration to the Deputy’s request for publication of that analysis, that consideration will also have to have regard, among other things, to any commercial implications or sensitivities on which publication of the analysis could impact.
Question No. 252 answered with Question No. 143.
253. Deputy Martin Heydon asked the Minister for Finance his plans to change the incapacitated child tax credit; and if he will make a statement on the matter. [47186/13]
View answerThe position is that all tax expenditures and reliefs are kept under consideration and are reviewed in the run up to the annual Budget. However, I have no immediate plans to amend the incapacitated child tax credit.
