Dáil Éireann Debate, Wednesday - 23 October 2019
91. Deputy Michael McGrath asked the Minister for Finance the position on tax relief for employees and the self-employed in respect of pension contributions; his plans to introduce changes in this area; and if he will make a statement on the matter. [43722/19]
View answerI am advised by Revenue that tax relief for employees may be granted for contributions to an “exempt approved” occupational pension scheme under section 774 Taxes Consolidation Act 1997 (TCA); contributions to a statutory scheme under section 776 TCA; contributions to a retirement annuity under section 784 TCA; contributions to a Personal Retirement Savings Account (PRSA) under section 787C TCA; and for contributions to a qualifying overseas pension plan under section 787N TCA.
Tax relief for the self-employed for pension contributions may be granted for contributions to a retirement annuity or a PRSA.
Relief for contributions to occupational pension schemes, statutory schemes and qualifying overseas pension plans is granted to an employee by deducting the pension contributions as an expense of the employment income for the year in question.
Employee contributions can take the form of ordinary annual contributions, additional voluntary contributions (AVCs) or special contributions. Relief for ordinary annual contributions and regular AVCs is normally provided by an employer under the “net pay arrangement”, whereby employee pension contributions are deducted from gross pay before tax is calculated. In the case of special contributions, relief is normally granted by way of a claim made by the taxpayer to Revenue at the end of the relevant tax year. Any unrelieved special contributions made in a year can be carried forward and treated as a contribution made in future years for the purposes of tax relief (subject to the relevant limits applying for those years) until the full relief has been granted or the relief cannot be carried further forward.
An individual who is a member of an approved pension scheme or a statutory scheme, (other than a scheme which is limited to providing a death in service gratuity, or a pension to surviving spouse, civil partner, children or dependants) may only claim relief for additional voluntary contributions (AVCs) to a Personal Retirement Savings Account (PRSA) against her/his income from the office or employment.
Tax relief for self-employed individuals is allowed against “relevant earnings”, which means earnings from a trade, profession, office or employment.
For employed and self-employed individuals, the relief is granted at the marginal rate of income tax. The amount of contributions on which relief can be granted in a tax year is limited to an age-related percentage of the individual’s earnings, ranging from 15% for employees aged under 30 years to 40% for employees aged 60 years and over, and subject to an overall annual earnings’ cap of €115,000. Where an individual has two or more sources of income (for example, earnings from employment and profits from self-employment) and is making pension contributions to more than one pension product (for example, an occupational pension scheme and to an RAC/PRSA), the single aggregate earnings limit of €115,000 applies in determining the amount of tax relievable contributions.
There is no relief from either PRSI or the USC for pension contributions. There is also an upper limit (called the “Standard Fund Threshold”) of €2million on the tax-relieved amount of an individual’s pension fund.
The Government published A Roadmap for Pensions Reform 2018 - 2023 in February last year. The Roadmap takes a holistic view of pension issues and details specific measures presented under six strands.
Implementation of the Roadmap is primarily a matter for my colleague the Minister for Employment Affairs and Social Protection and her Department, but the Interdepartmental Pensions Reform and Taxation Group (IDPRTG) was allocated a number of specific measures under the Roadmap. The IDPRTG is chaired by the Department of Finance and includes representatives from the Department of Public Expenditure & Reform, the Department of Employment Affairs & Social Protection, Revenue and the Pensions Authority.
The actions allocated to the IDPRTG under the Roadmap derive in the main from Strand 3, which is concerned with improving the governance and regulation of supplementary pensions to, among other things, achieve scale, improve standards and simplify the provision of pensions. Relevant action points include the consideration of measures that could harmonise rules, eliminate anomalies and rationalise the number of pension vehicles.
The IDPRTG has been considering these action points as part of a process that included a public consultation. It has produced a report that I will be considering in the coming months.
