Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank the Deputy for tabling the amendment. On tax treatment of supplementary pensions, as the Deputy is aware, Ireland operates an exempt-exempt tax, EET, system. This means that contributions to pensions are exempted from income tax, subject to age-related percentage and income limitations, as mentioned earlier. Pension fund gains are exempted from income tax but income from pension drawdown is liable for tax. Where data are available on the cost to the Exchequer of tax relief for pensions, these data are publicly available and included in Revenue’s publication on the cost of tax expenditures as well as in the Department of Finance report on tax expenditures, which was published with the budget last month. With regard to a distributional analysis, I am advised by Revenue that prior to the introduction of real-time reporting, that is, PAYE modernisation, in January 2019, pension contributions were reported to Revenue at an employer level rather than an employee level. As the Deputy will be aware, while there were some delays in the processing and publication of the data following the implementation of the new system, Revenue has been publishing data and some more detailed analysis on its website as they become available.

The Department of Finance report on tax expenditure and Revenue's cost of tax expenditures publication both contain information on the cost to the Exchequer of tax expenditures, including tax relief for pension contributions. In 2020, the cost associated with tax relief for employee pension contributions was €1.154 billion. This is a significant cost but it is an important part of encouraging savings for retirement. Revenue informs me that more than 1 million employees made pension contributions at some point last year. In 2022, pension contributions made through employers by employees and employers totalled €3.6 billion and €2.6 billion, respectively. These include contributions to occupational pensions, additional voluntary contributions, AVCs, contributions to personal retirement savings accounts, PRSAs, and contributions to retirement annuity contracts, RACs. Those with higher incomes make greater contributions to their pensions, but the average share of income set aside in pension contributions is relatively consistent across the income ranges.

It is typically 3% to just under 7% and below the maximum age-related percentage thresholds which apply to pension contributions. However, I am aware of the importance of additional data in this area. The interdepartmental pensions reform and taxation group, which reported in November 2020, was tasked with a number of actions relating to the pensions roadmap, including proposals aimed at simplifying and harmonising the supplementary pension landscape and an assessment of the cost of State support for pension savings. The actions identified in the report are being worked through.

The report notes that the tax treatment of pensions represents one of the largest Exchequer tax expenditures. However, in common with other countries operating an EET system, the exact cost of this is difficult to quantify due to the general nature of tax expenditures and specific pension-related challenges, such as limited data availability on some features of the pension regime in Ireland. It is therefore challenging to capture the exact data that are needed to comprehensively analyse the varying types of pension relief.

The group’s report recommended further consideration in the area of pensions to specify and collect the necessary data to support policy analysis. In addition, the Commission on Taxation and Welfare has identified improving the data available on pension contributions as a necessary action. The group has collected data that are available, identified data constraints in this area and will propose options on how these could be addressed. As has already been outlined, data are available and published by Revenue relating to pension contributions. The same level of information is not available to Revenue in relation to the cost of tax relief provided as pensions savings grow and at drawdown due to the nature of these phases of a pension and how the tax relief is provided.

The group is continuing to consider these aspects of the data challenge, and where actions fall to the Department on foot of these considerations, my Department will be working to implement any necessary changes. I do not therefore believe that a further report is necessary at this time and I do not propose to accept the amendment.