Dáil Éireann Debate, Tuesday - 9 November 2021
120. Deputy Pearse Doherty asked the Minister for Finance the total number of employees with gross pay in excess of €100,000, €200,000 and €300,000 who availed of tax relief on their pension contributions in 2019; his views on whether this is a judicious use of resources; if he will consider a review of the tax relief on pension contributions; and if he will make a statement on the matter. [54429/21]
View answerI am advised by Revenue that data in relation to incomes for 2019 is still being processed and consolidated. Once completed, analysis can be carried out as requested by the Deputy, reconciling taxpayers to a taxpayer unit basis (where jointly assessed couples are counted as one unit) and accounting for all income sources and pension contributions made. This analysis, which is necessary to estimate a cost associated with employee pension contributions at a taxpayer unit level, is anticipated to be completed by end 2021.
As this is new data provided for by PAYE Modernisation, 2019 will be the earliest year for which this data will be available.
To answer the Deputy’s question if tax relief on pension contributions in respect of certain salary ranges is a judicious use of resources, I would make the following general observations. Like the majority of OECD countries, in terms of the tax treatment of supplementary pensions, Ireland operates an Exempt, Exempt, Tax (EET) system. This means that contributions to pensions are exempted from income tax (subject to age-related percentage and income limitations), pension fund gains are exempted from income tax but income from pension drawdown is taxed.
The Inter-Departmental Pension Reform and Taxation Group (IDPRTG) recently reviewed the cost of funded supplementary pensions to the Exchequer. In its report published in November 2020, it noted that in common with most developed countries, fiscal support for private pension saving exists in Ireland. This support is provided by way of tax relief, with its inclusion in the tax code predating the foundation of the State.
It observed that in providing incentives, States are motivated by the policy objective of increasing aggregate savings or encouraging citizens to provide for their retirement, by deferring a sufficient amount of income and consumption today to provide for their later years. This is based on an assumption that individuals require an incentive to lock-up savings until they retire given that alternative saving vehicles allow on-going access.
It also noted that the tax treatment of pensions represents one of the largest Exchequer tax expenditures. However, in common with other countries operating an EET system, the exact cost of this is difficult to quantify due to the general nature of tax expenditures and also specific pension-related challenges, such as limited data availability on some features of the pension regime in Ireland.
Overall, the policy objective for tax relief on pension contributions is to encourage individuals to save for retirement, to meet a target level of supplementary pension coverage and an income replacement target, and to assist in preventing an over reliance of State support for people in later life.
In my view, we should seek to make overall progress in the area of pension provision in a manner that is comprehensive and surefooted. That broad approach is what has informed recent action in this area including the Roadmap for Pensions Reform 2018-2023 which, in turn, led to the work of the Interdepartmental Pensions Reform and Taxation Group and the separate work of the Pensions Commission. Indeed, the Commission on Taxation and Welfare has also been charged with considering the output from the Pensions Commission regarding sustainability and eligibility issues in respect of State Pension arrangements.
