Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I assume the proposed amendment follows on from comments made by the Deputy in his response to the Finance Bill debate on Second Stage. During that debate, he highlighted the differential treatment afforded to employer contributions to trust-based occupational pension schemes as compared to PRSAs, in so far as the operation of the annual limits on employee tax-relieved pension contributions are concerned.

Basically, the amount of tax-relieved contributions which an individual or an employee can make towards pension savings in any one year is subject to a limit based on an age-related percentage of his or her annual earnings and to an overall earnings cap of €115,000 per annum. In the case of PRSAs, any employer contributions are aggregated with the employee’s contributions for the purpose of determining if these limits are adhered to. In addition, employer PRSA contributions, unlike employer contributions to trust-based occupational pension schemes, are treated as a benefit-in-kind of the employee. As against that, however, they are also deemed for tax relief purposes to be a contribution made by the employee. This means, in effect, that, where the aggregate amount of employer and employee contributions to the employee’s PRSA does not exceed the employee’s annual age-related limit, no effective benefit-in-kind charge arises. This is because any potential benefit-in-kind charge arising for the employee, as a result of the employer contribution, is exactly offset by the employee’s tax relief on those contributions. It is only where the combined contributions exceed the age-related limits that an effective benefit-in-kind tax charge arises.

I am assuming that the intent of the Deputy’s amendment is to, first, remove employer contributions to PRSAs from the compass of the employee annual age-related limits; second, although not specifically provided for in the amendment, to remove the benefit-in-kind charge on the employee in respect of the employer contributions. This, I think, the Deputy would view as levelling the playing pitch vis-à-vistrust-based occupational pensions schemes.

In that regard, however, I have explained several times over the years in response to parliamentary questions on this issue, that there are good reasons for this differential treatment, which are of long standing. In the case of trust-based occupational pension schemes, employer contributions are effectively controlled, first, by the statutory limit on the maximum benefits that can be provided for an employee under a scheme, that is, a pension not exceeding two thirds of final salary; second, by the standard fund threshold regime which places an overarching limit on all pension benefits of €2 million.

In the case of PRSAs which were introduced in 2002, these are contract-based products which are beneficially owned by the PRSA holders. As with other contract-based pension products, for example retirement annuity contracts, no benefit limit as such applies to the contract. Control of benefits in such instances is exercised through restrictions on the annual amount of tax-relieved contributions that can be made by, or in respect of, the PRSA holder. In the absence of contribution-based controls, it would simply not be possible, under the current legislative structure, to restrict the amount of benefits arising under such contracts, other than by way of the standard fund threshold limit of €2 million mentioned earlier.

I do not propose, therefore, to accept the Deputy’s proposal to amend the legislation in a fashion which would remove the impacts of the current restrictions on employer-related contributions to PRSAs. Apart from increasing the annual cost of tax relief on pension contributions to the Exchequer generally, it would also mean that employers would be in a position, of which I have no doubt they would avail, to pick and choose favoured employees in respect of whom they would make significant additional contributions above current levels and above the levels made by them to employee PRSAs generally.

All of that said, I accept the differing approaches to the treatment of contributions to PRSAs and to occupational pension schemes, while having a sound basis, is just one manifestation of the overall complexity of the rules surrounding private pension provision. These are being looked at in the context of the broader reform of the pensions area being considered by the Tánaiste and Minister for Social Protection. This change agenda includes work to reform and simplify the pensions landscape, to ensure schemes operate effectively and there is a regulatory structure which gives pension savers confidence in the system. This encompasses consideration of potential impediments to the uptake of PRSAs. It is in that context that the issue of concern to the Deputy can best be considered.