Mary Harney (Dublin Mid West, Progressive Democrats)
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I move:

(1) THAT, as respects the year of assessment 2005 and subsequent years of assessment, Part 30 of the Taxes Consolidation Act 1997 (No. 39 of 1997) be amended by inserting, in Chapter 4, the following after section 790A:

790AA.—(1)(a) In this section—

'administrator', in relation to a relevant pension arrangement, means the person or persons having the management of the arrangement, and in particular, but without prejudice to the generality of the foregoing, references to the administrator of a relevant pension arrangement include—

(i) an administrator, within the meaning of section 770(1),

(ii) a person mentioned in section 784, lawfully carrying on the business of granting annuities on human life, including the person mentioned in section 784(4A)(ii), and

(iii) a PRSA administrator, within the meaning of section 787A(1);

'excess lump sum' has the meaning assigned to it by paragraph (d);

'lump sum limit' means €1,250,000;

'relevant pension arrangement' means any one or more of the following—

(i) a retirement benefits scheme, within the meaning of section 771, for the time being approved by the Revenue Commissioners for the purposes of Chapter 1,

(ii) an annuity contract or a trust scheme or part of a trust scheme for the time being approved by the Revenue Commissioners under section 784,

(iii) a PRSA contract, within the meaning of section 787A, in respect of a PRSA product, within the meaning of that section,

(iv) a qualifying overseas pension plan within the meaning of Chapter 2B,

(v) a public service pension scheme within the meaning of section 1 of the Public Service Superannuation (Miscellaneous Provisions) Act 2004 (No. 7 of 2004),

(vi) a statutory scheme, within the meaning of section 770(1), other than a public service pension scheme referred to in paragraph (v);

'specified date' means 7 December 2005.

(b) (i) For the purposes of this section, a reference to a lump sum is a reference to a lump sum that is paid to an individual under the rules of a relevant pension arrangement by means of commutation of part of a pension or of part of an annuity or otherwise.

(ii) Without prejudice to the generality of subparagraph (i), the reference in that subparagraph to the commutation of part of a pension or of part of an annuity, shall, in a case where an individual opts in accordance with section 772(3A) or, as the case may be, section 784(2A), be construed as a reference to the commutation of part of the pension or, as the case may be, part of the annuity which would, but for the exercise of that option, be payable to the individual.

(c) For the purposes of this section, references to a lump sum that is paid to an individual include references to a lump sum that is obtained by, or given or made available to, an individual and references to a lump sum which was, or has, or had been paid to an individual shall be construed accordingly.

(d) For the purposes of this section, the excess lump sum, if any, in respect of a lump sum that is paid to an individual on or after the specified date (in this paragraph referred to as the 'current lump sum') shall be-

(i) where no other lump sum has been paid to the individual on or after the specified date, the amount by which the current lump sum exceeds the lump sum limit, and

(ii) where before the current lump sum was paid, one or more lump sums had been paid to an individual, on or after the specified date (in this paragraph referred to as 'the earlier lump sum'), then—

(I) where the amount of the earlier lump sum is less than the lump sum limit, the amount by which the aggregate of the amounts of the earlier lump sum and the current lump sum exceeds the lump sum limit, and

(II) where the amount of the earlier lump sum is equal to or greater than the lump sum limit, the amount of the current lump sum.

(e) For the purposes of paragraph (d)—

(i) a lump sum (in this subparagraph referred to as the first-mentioned lump sum) shall be treated as paid before another lump sum (in this subparagraph referred to as the second-mentioned lump sum) if the first-mentioned lump sum is paid before the second-mentioned lump sum on the same day, and

(ii) a lump sum shall not be treated as paid at the same time as one or more other lump sums and, where but for this subparagraph they would be so treated, the individual to whom the lump sums are paid shall decide on the order in which they are to be deemed to be paid.

(2) Subject to subsection (4)—

(a) where a lump sum is paid to an individual on or after the specified date, the excess lump sum, if any, shall be regarded as a payment to the individual of emoluments to which Schedule E applies, and, accordingly, the provisions of Chapter 4 of Part 42 shall apply to any such payment, and

(b) the administrator of a relevant pension arrangement shall deduct tax from the payment at the higher rate for the year of assessment in which the payment is made unless the administrator has received from the Revenue Commissioners a certificate of tax credits and standard rate cut-off point or a tax deduction card for that year in respect of the individual referred to in paragraph (a).

(3) Subsection (2) of section 787G shall apply in respect of any income tax, being income tax deducted from an excess lump sum by virtue of subsection (2) of this section, by an administrator of a relevant pension arrangement of a kind described in paragraph (iii) of the definition of relevant pension arrangement in subsection (1)(a), as it applies to income tax referred to in subsection (2) of section 787G.

(4) Where a lump sum is paid to an individual, on or after the specified date, under the rules of a relevant pension arrangement of a kind described in paragraph (iv) of the definition of relevant pension arrangement in subsection (1)(a), the excess lump sum, if any, shall be charged to tax under Case IV of Schedule D for the year of assessment in which the lump sum is paid to that individual.

(5) Subsections (2) and (4) shall not apply to a lump sum that is paid to a widow or widower, children, dependants or personal representatives of a deceased individual.

(6) Section 781 shall have effect notwithstanding the provisions of this section.".

(2) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

The State encourages individuals to supplement the State pension with private pension arrangements by offering generous tax relief on private pension provision. Tax relief is available for contributions by individuals and employers to a pension fund and the growth in the pension fund is also tax exempt. The cost of these reliefs is not insignificant. The Revenue Commissioners have estimated the cost of tax relief for pension funding as being of the order of €3 billion.

Current rules provide for a maximum tax-free pension lump sum of either 1.5 times final remuneration or 25% of the pension fund, depending on the type of pension arrangement involved or the individual's position as a proprietary director. However, to date there has been no absolute monetary cap on the amount of tax-relieved pension savings that can be built up in a pension fund and therefore no absolute cap on the amount that can be taken as a lump sum from a pension, totally tax-free. Tax equity would dictate that there should be a limit on the extent to which the Exchequer should be expected to fund savings towards an individual's retirement through the tax system and, as part of that, towards the provision of a tax-free lump sum.

It is proposed, therefore, to apply an absolute cap of €1,250,000 on the tax-free lump sum from a pension taken on, or after, today. The figure of €1,250,000 derives from 25% of the proposed new maximum tax relievable pension fund of €5 million mentioned in the Budget Statement by the Minister for Finance. While this maximum fund limit may seem high, it needs to be appreciated that the fund required to produce a pension is many multiples of the annual pension that comes into payment. It can be anywhere from 20 to 30 times more, depending on the individual's circumstances.

The lump sum restriction will apply to all pension arrangements, such as occupational pension schemes, retirement annuity contracts, PRSAs, public sector and statutory schemes. The limit will apply both individually to lump sums payable under each of these pension products and in respect of the aggregate of lump sum benefits paid to a single individual from more than one such product. In effect, this means that under the new rules the maximum tax-free lump sum will be the lower of 1.5 times final remuneration, or 25% of the fund, and the new limit of €1,250,000. The restriction will not apply to "death-in-service" type payments made, for example, to a surviving spouse. Lump sums taken prior to budget day will, of course, be unaffected by the change. Any lump sums taken in excess of the new absolute limit will be subject to taxation at the individual's marginal income tax rate. It is tentatively estimated that this measure will generate a saving to the Exchequer in the region of €5 million or more in 2006.

The limit on lump sums of 25% of the new maximum fund of €5 million will have no impact whatsoever for the generality of taxpayers. It is likely that only a small number of high earners, such as higher paid employees and proprietary directors, will be affected. The measure reflects Revenue data indicating that very large tax-free lump sums were being taken by some. I commend the resolution to the House.

Paul McGrath (Westmeath, Fine Gael)
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We will not oppose this resolution either. It is timely that this should be introduced. Up to now we had total inequity and a certain amount of inequity will still remain regarding investment in pensions. A person aged 50 or more on the average industrial wage of €30,000 can invest 30%, €9,000, in a pension fund tax-free. A person earning €300,000, like those we were discussing in the previous resolution, and who is aged 50 or more, can invest 30%, €90,000, in his or her pension fund. There is a total inequity in that arrangement.

The restrictions the Government is now imposing will still leave the system strongly tilted towards the very rich. I wonder whether the proposed limit is adequate to balance the inequity that may exist. To what extent has the Government considered the amounts that should be permitted to be invested in pension funds? I understand it takes capital of approximately €1 million to generate income of €60,000 per annum, which is a reasonable amount. The cap the Government is introducing is €1.25 million. We will not be opposing this timely resolution. Perhaps at some later stage when there is a greater awareness of pensions, etc., it might be made more equitable.

Pat Rabbitte (Dublin South West, Labour)
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I did not know the Government was entitled to introduce resolutions just for those in the Bar Library. If it is legitimate I am happy to support it.

Seán Ardagh (Dublin South Central, Fianna Fail)
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Is the Deputy moving?

Pat Rabbitte (Dublin South West, Labour)
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It is still very generous. As the Tánaiste said it will not have an impact on many people. Quite a number of years ago we first learned that it was possible to get £2,300 per day for a tribunal that we did not expect to last for approximately ten years. The then chairman of the Bar Library, a highly-respected figure, appeared on the "Prime Time" programme to defend these inordinately high earnings.

Mary Harney (Dublin Mid West, Progressive Democrats)
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I saw the programme and I know the person about whom the Deputy is speaking.

Pat Rabbitte (Dublin South West, Labour)
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During the course of the discussion he explained that £2,300 per day was not at all excessive considering all the costs they had. He said: "Why, only today I had to write a cheque for £58,000 towards my own pension". There are two different worlds that do not collide. This resolution is still quite generous. Of course, I have no intention of opposing it. It is fair.

The budget contains little to incentivise pension savings for the great mass of the people. This is a rather focused resolution to address inequity. While it is overdue, I entirely welcome it. However, on the matter of incentivising, I was somewhat surprised that the Minister made no reference to SSIAs. If he dealt with it, I did not hear it.

Seán Ardagh (Dublin South Central, Fianna Fail)
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It is a different league altogether.

Pat Rabbitte (Dublin South West, Labour)
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That is true. Nonetheless if the issue is to be addressed by the Exchequer, it needs to be addressed in this budget rather than by whoever introduces the budget this time next year. The whole pensions issue warranted some initiative in that regard. However, that is a wider debate than the terms of this resolution, which we are very happy not to oppose.

Seán Ardagh (Dublin South Central, Fianna Fail)
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I am happy to support Financial Resolution No. 4. The amount of wealth that has been created here during the past 20 years is amazing particularly for the number of individuals who are extremely wealthy, many of whom have contributed greatly to developments in Ireland, to employment and the capital infrastructure. The whole question of tax equity comes into it. We have been going overboard in giving an unlimited amount of pension contributions, relieved from income tax, to a large number of people who have put millions of euro into their pension fund to acquire properties into the future. Effectively, many of these pension funds are not there to provide an income for the individual but to provide a method of avoiding some form of death duty in passing on their wealth to their successors and heirs in a tax effective and efficient way. It is appropriate that this item is included in the resolution.

The lump sum limit is €1.25 million, which is lower of one and a half times remuneration, 25% of the amount in the pension or €1.25 million. That would mean that one would need remuneration of approximately €850,000 in one's final year to be able to draw a lump sum of €1.25 million. No matter what way one goes, that individual will have a lump sum of €1.25 million and some form of income in excess of €750,000 also, on which he or she pays tax. There was a crying need for this resolution and for something to be done about the massive pension contributions that were allowed against income for tax purposes for wealthy individuals while those who did not have the same resources were effectively paying for that contribution.

On the question of the SSIAs as raised by Deputy Rabbitte, it appears there is something coming down the pipeline. Perhaps it will be included in the Finance Bill. There is a need to encourage people to put money into pension funds for the future.

Finian McGrath (Dublin North Central, Independent)
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What will one get with €20,000?

Eamon Ryan (Dublin South, Green Party)
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The Green Party is happy to welcome this resolution. It is interesting that each of the speakers from both sides have said, in a sense, that there is a common acceptance of the inequity in our pension system. That we are still and will increasingly spend more in tax foregone than in the provision of State non-contribution pensions is remarkable in terms of income distribution. That 80% of the tax foregone is to the top 20% of taxpayers shows what a massive transfer of wealth we are organising in our pension system. While I welcome this measure I regret it does not go further.

Speaking on a personal basis, my experience to date with pension schemes is having to pay one. It is a remarkable infringement by the State that the only investment I can make for a pension that will qualify for such generous tax breaks, because of my current income here and the higher tax bracket, is in some kind of a unit fund system over which I have no control and I do not have any choice.

The Tánaiste has spoken in the past about the need for choice and freedom in business decisions. I do not have a choice in regard to my pension contributions. I would like to see a system introduced which allowed greater choice and freedom rather than what has been described by some commentators, such as David McWilliams, as a scam by the financial industry because of the tax breaks being provided. I find that restricts me and my ability to invest for the long-term future as I see fit.

It is interesting that a number of speakers have raised the issue of the SSIA scheme. Whatever about us not commenting on the current scheme I regret we are not looking at a redevelopment, extension or a new version of the scheme which might provide a long-term pension option. It could be on the basis of a ten-year payment on a fixed interest rate or a further 20 year payment on a lower rate of interest which would provide a secure option which the State would back up. This would allow people invest in something other than the current unit trust or other private funds that are available. Such a development would be welcomed and is one the Green Party has proposed.

While we welcome this initiative it is a sign we are not going far enough and that the basic inequity in our pension scheme remains. That needs to change.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I feel strongly that it is excessive that 25% of a pension fund can be drawn down as a lump sum, tax free. There is no question that it favours the higher earner group. The broad mass of citizens will never be able to qualify for any benefit in regard to this proposal. Therefore, we are perpetuating inequalities as a consequence.

I seek an assurance on one issue. The restriction will apply to a single lump sum or, where more than one lump sum is drawn down, the aggregate value of those lump sums. As it is the practice in some sectors for deferred pension entitlement-draw down, is there any fear that this allows for deferral into another tax year and that the aggregate position would then be avoided? Is it understood that the aggregate position in regard to a series of draw-downs applies into perpetuity and is not time-limited into any one tax year? It is unclear from this and I would like an assurance that there is not inbuilt in the resolution as presented a flaw that will allow for other abuses.

Mary Harney (Dublin Mid West, Progressive Democrats)
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The Minister for Finance, Deputy Cowen, said in his Budget Statement at A.21 that he intends in the Finance Bill to bring forward measures to help those towards the lower end of the income scale, and those who are not using their current full entitlements, to provide themselves with reasonable retirement arrangements. The pension coverage review took place recently, the outcome of which is before the Cabinet and will be published shortly. That will feed into proposals that might inform the Finance Bill because we have to be concerned about the low pension coverage in the State. Those who work in the public sector — I include all of us for this purpose — who are lucky to survive here for 20 years are fortunate that we have a guaranteed pension, as have public servants. The vast majority of people, particularly low to middle income groups and women, are not so lucky. That is a major issue for society.

The Government decided some years ago to set aside 1% of GNP for a future pension fund. State pensions were an innovative step although the demographic profile in this State is better than in most of our European counterparts. One Independent Deputy said today that as a result of the budget everyone in the country will have children. If that forecast is borne out, we will not even have to worry about the demographics of the future. We have major issues. I must say when I saw it first, €1.25 million seemed a lot, but as Deputy McGrath acknowledged one must put aside 20 to 30 times what is received as an annual payment to create a fund. The purpose is to balance between the extreme position that perhaps exists at the moment and was held for good reasons to encourage pensions provision and not have it so wide open that one could literally receive €8 million by way of a lump sum and pay no tax at all. Effectively, that would only have applied to proprietary directors who could decide what their earnings were in the past year and what to put into their fund. That luxury or possibility did not exist in an employer employee relationship.

It is interesting to note that many of the measures in today's budget will help to restrict the capacity of high income earners to use reliefs to eliminate their tax liability. Although it involves only a few people, it is not acceptable in any society that some people who live here make no contribution to the State. No fair minded person could possibly condone that. It is interesting to note that 21% of taxpayers pay 77% of the taxes. If memory serves me correctly, 1% or 2% of taxpayers pay more than 20% of the taxes. We have quite a progressive tax system in operation.

Clearly, many of the reliefs introduced from time to time are to encourage economic development and activity. I read recently that the South African Government introduced extremely attractive tax proposals to encourage urban regeneration in Cape Town and other cities in South Africa. Many Governments use tax instruments to encourage investment, from their own and foreign citizens. That is not a bad thing. A problem arises when it is used to excess. We are discussing a fund of €5 million, capping the lump sum at €1.25 million. On the point made by Deputy Ó Caoláin, the wonderful officials from the Department of Finance confirm that the aggregate applies for all lump sums paid in or after budget day. It does not apply solely within a single year. That will satisfy Deputy Ó Caoláin.

Regarding the SSIAs, in the context of the Finance Bill, the Minister will examine how he can encourage low and middle income earners to make provision for future pension requirements.

Eamon Ryan (Dublin South, Green Party)
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I have one question. The Tánaiste mentioned in her response the widespread need for pension contributions from people with low and middle incomes. The work done by parents in the home was not recognised in the budget. It is difficult work which is important for our society. However, it does not have a pension provision or any other statutory provision. Does the Tánaiste think it is time we recognised that work and gave the people involved the same rights that people in other working environments have?

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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I am not sure that arises on this resolution. It does not.

Mary Harney (Dublin Mid West, Progressive Democrats)
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In order to be helpful, when the Government discussed the child care issue, we were anxious to ensure we were neutral as between a parent who goes out to work and a parent who remains at home to look after the children. We also wanted to ensure that those who do not pay tax because of low earnings, and 36% of income earners on the minimum wage do not pay tax, were not disadvantaged. That is why we chose the direct grant or payment.

Equally those who stay at home receive a tax credit. These are major issues. I accept that pension issues arise and anything we can do to encourage pension provision for income earners, dependent spouses and citizens generally must be encouraged. It is the greatest guarantee that people can live independent lives free from worry about what their circumstances might be in old age.