Mairead Farrell (Galway West, Sinn Fein) | Oireachtas source

I move amendment No. 22:

In page 20, between lines 25 and 26, to insert the following: “Report on pension tax reliefs and subsidies

16.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the tax reliefs and subsidies applicable to pensions, including contributions and at drawdown, to assess their cost to the Exchequer and distributional impact.”

The amendment seeks to introduce a report on pension tax reliefs. It would be inserted on page 20, between lines 25 and 26, and proposes the introduction of a report on pension tax reliefs and subsidies to be laid before the Dáil within six months. Given that pension reliefs amount to approximately €2.7 billion per annum in revenue forgone, greater than the entire 2022 expenditure allocation for the Department of Children, Equality, Disability, Integration and Youth, we need to examine the value for money and equity of these reliefs.

Ireland, in common with most other advanced economies, taxes pensions under a regime that can be broadly characterised as exempt, exempt, taxed, EET, whereby income is exempt from tax when first received and paid into a pension, exempt from tax as the returns accrue, and taxed when funds are withdrawn from the pension. However, there are some important exceptions to this broadly EET regime in Ireland. Since 2011, employee pension contributions are subject to both employee PRSI and USC. Pension income drawdown in retirement is subject to USC but not employee or employer PRSI and individuals can draw down a large tax-free lump sum in retirement. Contributions are subject to annual limits that vary with age. These exceptions mean that neither employee nor employer PRSI is ever levied on the overwhelming majority of employer pension contributions and this is because PRSI is not charged on the incomes of those above the State pension age and only since 2014 on certain forms of unearned income. In other words, employer pension contributions are subject to an exempt, exempt, exempt PRSI regime. Speaking at the Committee on Budgetary Oversight on 24 June this year, Dr. Micheál Collins of UCD noted:

The largest area of personal tax expenditure relates to pensions. Overall, pension reliefs amount to €2.7 billion per annum in revenue forgone. Reform to this area sits in the context of other proposed reforms to pension savings supports, including the introduction of auto-enrolment, which may carry significant additional costs in State subsidies and tax expenditure. Within the area of pension savings, three tax expenditure measures are worth reforming. The first of those is limiting all pension contributions to tax relief at a single rate of income taxation. Currently, this is offered at the marginal rate. This means that the State supports the savings of higher income earners more than those on lower incomes. Depending on whether the adjustment was to a standard rate for all or to a hybrid rate, say 31%, the annual savings would be between €200 million and €400 million per annum.

On average, 775,000 people make pension contributions every month through employer payrolls and this represents approximately 30% of all employees on average. Slightly more than 875,000 employees made pension contributions at some point in 2019. This is based on cumulative pension contributions and cumulative income for the year. Those on greater incomes are paying, on average, a greater amount of pension contributions and that means they are primarily benefiting from tax relief on pension contributions at a cost to the Exchequer, with tax relief on employees' contributions to approved superannuation schemes in 2018 costing €678 million. For example, in 2019 4,200 individuals with incomes above €300,000 availed of pension contributions totalling €87.6 million, costing the taxpayer approximately €35 million. How is this equitable? I would like to hear the views of the Minister in this regard.