Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 17:

In page 59, between lines 34 and 35, to insert the following:

“Report on pension tax reliefs and subsidies

21. 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.”.

This amendment states that the Minister shall 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. We know that tax reliefs on pensions cost approximately €2.7 billion per annum in revenue forgone. To put that in context, it is greater than the entire allocation for the Department of Children, Equality, Disability, Integration and Youth so it is important that we continuously examine the value for money and equity of these reliefs.

In common with many other advanced economies, Ireland taxes pensions under a regime that is categorised as exempt, exempt and then taxed where income tax is exempt but is first received and paid into a pension - exempt as it is accruing in the pension and then taxed as it is withdrawn. We heard from Dr. Michael Collins of UCD, who appeared before the Committee on Budgetary Oversight in June 2021. He said the largest area of personal tax expenditure relates to pensions. Overall pension reliefs amount to €2.7 billion per annum in revenue forgone. He said reform to this area sits in the context of other proposed reforms of pensions savings supports, including the introduction of auto-enrolment, which may carry significant additional costs in State subsidies and tax expenditure. He said that within the area of pensions savings, three tax expenditure measures are worth reforming. The first of those is limiting all pension contributions to tax relief at the single rate of income tax.

He said, "This is [currently] offered at the marginal rate. This means that the State supports the savings of higher income earners more than those on lower incomes." He went on to say this was "depending on whether the adjustment was to a standard rate for all or to a hybrid rate [of] 31%." Those are his views.

We know from the statistics that a large number of individuals are making pension contributions every month of just over €750,000, which represents approximately 30% of all employees. When we delve into the figures, however, we see that the distribution in terms of income and those benefitting from these beliefs is very much skewed. Those on greater incomes are paying, on average, a greater amount to their pension contributions. That is very clear to see from all of the graphs we have.

In 2019, for example, 4,200 individuals all had income in excess of €300,000 per annum. They availed of pension contributions totalling €87 million. That cost the taxpayer €35 million. Taxpayers subsidised those 4,000 individuals who earned more than €250,000 to the tune of €35 million. It is really important that we look at these issues. The Commission on Taxation and Welfare also drew attention to the fact that there is no up-to-date data in the tax expenditure report on tax relief on pension lump sums, which we discussed, with the most recent costing an estimated €134 million.

Given the cost of these expenditures, it is important to review them. We talked about the upper threshold of the pension pot whereby a person can accumulate a pension up to €2 million and receive tax reliefs from the State. We might look at the overall cost and the income distribution for the top 1% of earners. Am I right in saying that the cost of tax reliefs for the top 1% of income earners in this State is €315 million? We talked earlier about averages, means and medians. The average pension contribution in the State is very low. Somebody on €50,000 to €60,000 is putting in less than €2,000. The issue is that those at the very top are putting in a lot of money and, therefore, are able to avail of pension tax reliefs, which cost the State a lot of money. Then, we have the issue of the taxation structure we just discussed whereby a person arranges to have a large portion of that drawn down in a lump sum. The first €200,000 is, therefore, exempt from tax but the next €300,000 is paid at a 20% tax rate, which is amazing planning if a person is in a position to do it. For that reason, there is a need for a look at the distributional impact with regard to the reliefs that are available and the subsidies applicable to pensions.