Seanad debates

Tuesday, 31 May 2005

8:00 pm

Tim O'Malley (Limerick East, Progressive Democrats)

I thank Senator Terry for raising this matter. I am replying to her motion on behalf of the Minister for Finance, Deputy Cowen.

The ESRI report referred to is entitled Pensions Incomes and Replacement Rates in 2000, published in May 2005. Page 38 of that report states, "The Revenue Commissioners estimate that the net cost of the tax reliefs for private pension saving by employees, employers and the self-employed in the year 2000/01 amounted to €1.5 billion." This ESRI figure is €1 billion less than that mentioned in the Adjournment motion.

The following estimates of the cost for 2000-01 of certain pension reliefs are contained in table IT6 dealing with the cost of allowances and reliefs in the Revenue Commissioners' statistical report for 2002: employees' contributions to approved superannuation schemes —€471.9 million; employers' contributions to approved superannuation schemes —€646.2 million; exemption of net income of approved superannuation funds (contributions plus investment income less outgoings) —€1,292.3 million; and retirement annuity premiums —€205 million. The first three of these four figures are stated in the Revenue report to be particularly tentative. The total of the four figures comes to €2,615 million, which is broadly in line with the €2.5 billion mentioned by Senator Terry. There is no breakdown available of the first three figures as these are tentative estimates.

The €205 million figure relating to retirement annuity premiums is the Exchequer cost of the contributions to retirement annuity schemes, which schemes can be taken out by self-employed persons and by employees who are not members of an occupational pension scheme of their employers. There were 101,703 contributions made to retirement annuity contracts for 2000-01 relating to this €205 million Exchequer cost. There is no breakdown available to hand of the amounts claimed in respect of the ten highest contributions made. In any event Revenue confidentiality would rule out the identification of the individuals concerned.

With regard to the issue of obtaining further information on the Exchequer cost of pension reliefs, the Department of Finance and the Revenue Commissioners have been working closely recently to investigate data capture issues with a view to improving data quality and transparency without overburdening compliant taxpayers. Arising from this work, provisions were included in the Finance Act 2004 requiring employers to give information regarding the total employer and employee pension contributions in the annual P35 form detailing PAYE paid and so on. The preliminary data should become available from early 2006 after the relevant income tax returns are filed.

It should be stated that the purpose of these various tax reliefs is to encourage employers to provide pensions for their employees and to encourage employees and the self-employed to contribute to or to provide for their own pensions. This has been long-standing Government policy. It is also Government policy to increase pension coverage and these tax reliefs play a key role in this regard. It should be borne in mind that when pensions are eventually drawn down in retirement they are taxable subject to the usual income tax rules. Thus, a significant part of the Exchequer cost of the reliefs is eventually recouped.

It should be noted that these tax reliefs for private pension provision reduce the burden on the State to provide a larger amount of direct pension provision. In contrast, a number of other EU member states such as Germany, France and Austria whose pension provision is largely or almost entirely State funded have had to take major corrective action in the pensions area over the past five years because of the pressure on the public finances caused by demographic and other factors affecting pension provision.

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