Dáil Éireann Debate, Thursday - 17 July 2014
175. Deputy Michael McGrath asked the Minister for Finance if the savings to the Exchequer anticipated in budget 2014 from restrictions on the maximum income that can be generated tax free from a pension fund have been achieved; and if he will make a statement on the matter. [32683/14]
View answerI assume the Deputy is referring to the changes introduced in Budget 2014 and Finance (No 2) Act 2013 involving, among other things, a reduction from 1 January 2014 in the value of the maximum allowable pension fund at retirement for tax purposes (the Standard Fund Threshold SFT) from €2.3 million to €2 million.
The Deputy might note that the SFT regime does not operate on the basis of restricting tax relieved pension contributions on the way into a pension scheme or plan or restricting tax-exempt investment income or gains accruing in a pension fund or pension plan. Instead, the regime addresses the problem of pension overfunding and excessive pension accrual by imposing a much higher effective tax charge on the value of retirement benefits above set limits when they are drawn down, thus discouraging the building up through contributions of large pension funds in the first place or the unwinding of the tax advantage of such overfunding excessive pension accrual by way of the higher effective tax charge.
The yield from the changes made to the SFT regime is estimated at €120 million in 2014 and in a full year and 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.
These savings and additional tax revenues would mainly impact on the yield from income tax but it would not be possible (except through the imposition of significant additional administrative burden and cost on employers and pension administrators) to separately identify the total yield from the changes to the SFT regime from the general income tax yield. The Deputy will be aware that the yield from income tax in the first half of 2014 is marginally ahead of target for the period.
