In terms of the tax treatment of supplementary pensions, Ireland operates an Exempt, Exempt, Tax (EET) system. This is a similar system to that operated in the majority of OECD countries and 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.
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.
To answer the Deputy’s specific question, the performance of private pension funds is primarily a commercial matter and contingent on market circumstances and external factors.
As regards the pension fund levy, this levy was introduced in 2011 in the wake of the financial crash and at a time when the economy was in serious difficulties. Something had to be done to preserve and boost jobs and it is an unavoidable fact that difficult economic situations require hard and very often unpopular decisions. All sectors of the economy had to contribute to the recovery plan and the levy was designed to claw back a small amount of the very generous tax reliefs that those contributing to pension arrangements had benefitted from over many years.
The levy went to fund the tax reductions and expenditure measures introduced in the Jobs Initiative, including lowering the VAT rate for the tourism sector to 9%. The levy was successful and did its job as reflected in the increased activity and employment in that sector.
The value of the funds raised by way of the levies have been used to protect and create jobs and this has helped to support the improving financial and economic position of the State. Taxpayers who may have ultimately borne the impact of the levy will have since benefitted from tax reductions in the last number of Budgets, including the substantial income tax package announced as part of Budget 2022.
