Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 13:

In page 65, between lines 8 and 9, to insert the following: “Report on pension tax reliefs and subsidies

24.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 is about publishing 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. It is important we support individuals in terms of planning for their retirement. However, given that pension reliefs amount to €2.7 billion per annum in revenue foregone, greater than the entire expenditure this year on the Department of Children, Equality, Disability, Integration and Youth, we must examine the value for money and equity of these reliefs.

If anybody were to see an image of the percentile that actually avails of these reliefs, they will see they are not, in the main, going to low or middle income earners. Indeed, one would argue they are not even going to the high income earners. The majority is going to the 1% at the very top. That is an issue that needs to be addressed in terms of value for money and the equity of the reliefs.

Ireland, in common with other advanced economies, taxes pensions under a regime characterised as exempt, exempt and taxed. The income is exempt from tax when it is first received and paid into the pension, exempt from tax as the revenue or returns accrue within the pension and are then taxed when the funds are withdrawn from the pension.

On average, over three quarters of a million people make contributions every month through employer payrolls, representing about 30% of employees, on average. We recognise that many of those contributions are very modest, as the distributional impact will show. The data will also show that in 2019, 4,200 individuals with incomes above €300,000, that is, the top 1% of income distribution in the State, availed of pension contributions totalling €87 million, costing the taxpayer approximately €350 million. The question we pose in this amendment is how is that fair and equitable.

The Commission on Taxation and Welfare also drew attention to the fact that there is no up-to-date data on the tax expenditure report on tax relief on pension lump sums, with the most recent estimates being €134 million in 2014. The type of figures I have mentioned are lotto territory for a lot of people.

They could only dream of this situation. The reality is that people do pension planning and the State contributes 40% of their contributions to their pension in the form of tax reliefs. For every euro that goes into their pension the State basically puts 40 cent into it through this pension tax relief. The idea is that when someone starts to draw down the pension, he or she will pay tax at 40%. Not everybody will pay tax at 40% depending on their annual income at that time. A pension may be below that threshold and the person only pays 20% tax and, therefore, the system as designed did not really work. However, many people with high net wealth plan their pensions in terms of lump sums. Despite the fact that the taxpayer contributed 40% to the income that has gone into their pension, they are able to draw down €200,000 tax free and then a further €300,000 that is only taxed at 20%. That results in effect in a €500,000 lump sum where they only pay 60% into it. If €500,000 goes into such a pension pot, approximately €200,000 is contributed by the State. That is a serious issue.

According to the distributional impact of this, the top 1% of earners, which comprises 4,200 individuals, all of whom earn above €300,000, benefit. Some earn more than €1 million. We are subsidising gold-plated pensions for these individuals. This is not about the teacher, doctor or the person working in the factory who the State is supporting to grow their pension in the future. This is actually looking at whether this is equitable. How do we stand over a situation where people are able to go to the maximum limit of what they can push into their pension knowing that 40% of that is contributed by the taxpayer and then when they draw it down, they can structure it in such a way that some of it has no tax applied to it and some has the lower rate of tax applied? As I said this involves €350 million and 4,200 individuals, all of whom are in the top 1% of earners in this State. It is not a good resource or use of public funding. The thresholds and limits need to be adjusted so that the State is not subsidising gold-plated pensions. That is what the amendment is about.

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