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Pension Provisions.

Dáil Éireann Debate, Thursday - 3 March 2005

Thursday, 3 March 2005

Ceisteanna (1)

Richard Bruton

Ceist:

1 Mr. Bruton asked the Minister for Finance if he has examined the take-up of tax relief for pension contributions across different income categories; if he has satisfied himself with the incentives in the tax code for the provision for old age; and if the maturity of SSIAs offers an opportunity to promote a wider provision for pensions. [7436/05]

Amharc ar fhreagra

Freagraí ó Béal (7 píosaí cainte)

The latest figures published in the 2003 annual report of the Revenue Commissioners indicate that in the short tax year, April to December 2001, the cost of tax relief on pension contributions was tentatively estimated at approximately €2 billion. It is not possible at present to examine the take up of the tax relief for all pension contributions across different income categories. This is because the relevant information is not available to the Revenue Commissioners as the tax relief for pension contributions for employees is normally given at source, that is, the taxable income is the income net of pension contributions by employees.

However, data are available in respect of the tax relief for contributions to retirement annuity contracts, RACs, across different income categories. Retirement annuity contracts are used by the self-employed and by employees who are not in pensionable employment. It is intended to examine these data in the context of the review of pension reliefs which forms part of the review of tax reliefs for high earners.

There are a number of tax measures to make provision for old age. These include capital allowances in respect of nursing homes and housing for the aged and infirm, relief for health expenses which includes relief for approved nursing home fees, a carer's allowance and a home carer's tax credit as well as tax relief for payments to over 65 year olds under deeds of covenant. These provisions clearly indicate that the Government continues to have the best interests and long-term care of the elderly in our society at the top of its agenda.

Regarding the maturity of SSIAs, the use to which the SSIA moneys are put is ultimately a matter for the individual account holder. Any suggestion for further incentives by way of tax concessions to facilitate further savings on pension contributions will have to be judged in the overall context of Government priorities and resource constraints.

I am surprised at the sanguine view the Minister takes of tax relief for pension contributions. More than half of workers do not have pension cover and these are predominantly low income earners. Does the Minister agree that there is a real difficulty with the distribution of pension benefits? At the top end, people have unlimited opportunities if an employer is contributing to a pension for a director. On the other hand, many ordinary workers have no pension cover. Does the Minister not agree that there is a need for action to address this huge gap both in terms of equity and lack of pension cover?

Does he not agree that the SSIAs pose the risk of a considerable increase in consumer spending which could have an inflationary impact? Is there not, therefore, a great opportunity to examine pump priming pension cover, particularly for the lower paid who took the opportunity to participate in the savings scheme?

Tax relief for pension contributions is not unlimited. Relief on contributions to personal pensions and PRSAs is limited to a certain percentage of remuneration which rises with age, 15% to 30% for age 50 years and above. The employer contribution to PRSAs is aggregated with the employee contribution for the purposes of tax relief limits.

With regard to occupational pensions, where relief for employee contributions, including additional voluntary contributions, AVCs, is limited to an age related scale of 15% to 30% of earnings, there is no monetary or percentage limit in respect of relief given for employer contributions. The limitation on the employer contribution is by reference to actuarial guidelines in meeting funding requirements for the maximum pension of two thirds of final salary. This means that, unlike personal pensions where the control is on the relief given, the control here lies in the limitation of benefits paid. Furthermore, relief for employee contributions and contributions to personal pensions is capped at an earnings figure of €254,000.

Pension coverage is an issue that must be kept under review. The policy response must meet the challenge that confronts us. The CSO survey on pension coverage reveals that the coverage rate for persons in employment in the first quarter of 2004 was 52.4%. It has indicated it will complete its full survey of pension coverage towards the end of this year and it expects it to be published in the first half of 2006. The Pensions Board is also doing some work on this which might well be available in the middle of this year.

With regard to SSIA account holders, legislation on PRSAs was introduced in 2002. It would be desirable to monitor the up-take of these accounts before considering the need for incentives such as eliminating exit tax for SSIA funds which are eventually transferred to PRSAs.

The Minister said during the week that Fianna Fáil is the best party for the working man. However, the truth is that many working men do not have pension cover. The Minister must accept that there is an urgent case for enhancing the incentives to ordinary earners to get pension cover. At present, there is almost three times the incentive for people on high income to contribute to pensions than for people on low income. There is no justice in that. Would the Minister not take a more urgent approach than talking about long-term reviews and confirm that this is a priority and that he intends to tackle it?

The Pensions Board is due to report in mid-year on pensions coverage. That is not a long-term review.

The Minister did not indicate that he would act on it.

Obviously, I must wait to see what is in the report. If the Deputy knows what is in the report already, he has an advantage. The Pensions Board, which has a statutory remit in this area, is addressing this issue. It will come forward with ideas and recommendations as a result of the work it is doing.

With regard to what will happen with the SSIA scheme, we are monitoring that situation. I do not wish to indicate at this remove what, if any, response there will be from Government. It is better to monitor the situation. Obviously, I am examining the issue but it is not an issue on which the Government has come to a firm view.

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