Alice-Mary Higgins (Independent) | Oireachtas source

I move recommendation No. 7:

In page 66, between lines 8 and 9, to insert the following: “Report on private pension tax reliefs

25.The Minister shall, within six months of the passing of this Act, lay before both Houses of the Oireachtas a report on private pension tax relief including:

(a) an assessment of the cost to the exchequer;

(b) a comparative gender analysis of tax reliefs;

(c) the distributional impact; and

(d) the potential impacts or benefits of a shift from a marginal rate to a 30% standard rate approach for private pension tax relief in respect of cost to the exchequer and gender impact.”.

Recommendation No. 7 relates to private pension tax relief. There has been a reluctance to examine this issue fully. It was an extraordinary oversight that when the Pensions Commission was examining State pension policies, our current private pension tax relief was taken off the table and not subject to proper scrutiny and the same kind of rigorous analysis, auditing and modelling, including econometric modelling, as everything else being considered. The relief is at a marginal rate and has been shown to benefit those on higher incomes and men predominantly.

We are aware that over 70% of the tax relief for private pensions accrues to the top 20% of earners. It is a big elephant in the room, one that people do not like to talk about. Even many civil society actors and others do not like to discuss it; however, if we are discussing pensions policy, and particularly if we have proposals that could significantly negatively affect the pensions of everybody in this State – dangerous proposals on a potential move not just to a 30-year contributory requirement, as was anticipated, but to a 40-year one – we need to be able to talk about everything.

We have been told about a universal pension at the same level for everybody in the State, including all women and men. It was estimated by the Commission on Taxation and others that it would cost approximately €3 billion per year, but the last figure I got on private pension tax relief, which was a few years ago from a former Minister, was €2.9 billion. Therefore, we are spending an extraordinary amount on a tax relief at a marginal rate, so it gives a much higher benefit to higher earners. I realise there is an argument that it is captured later but the tax somebody pays on a pension is not the same as that which might be paid on income.It is the most egregious example of a trickle-up effect in terms of our pensions. On the contributory pension side, when we moved from ten to 20 years, women in particular found themselves on a reduced rate pension. If we move to 30 years, we are likely to see even more women on a reduced rate pension. If we go to 40 years, you can be guaranteed that an extraordinary number of workers in this State will not have 40 years of contributions, bearing in mind that only 20 years can be from a combination of PRSI credits while on social protection payments or caring credits. We know that many people are not going to meet that requirement for 20 years of solid contributions. We will have a parallel pension system moving along on one side and on the other side, we will have this other private pension system. Bear in mind that one of the few items in the IMF's memorandum of understanding with Ireland was the call for the standard rating to move to 30% rather than 40% versus 20%. If our actual goal is to try to ensure financial security for as many people as possible and even if you believe in private pensions as the way to that - we have auto enrolment being introduced now - you would not have a scheme that has been found to be ineffectively targeted at the top 20% of income earners and predominantly at men. One of the policy priorities the State should address in the context of pensions is the huge gender pension gap.

My recommendation calls for a report to be prepared that provides a proper assessment of the costs to the Exchequer of our current private pension tax relief system, a comparative gender analysis of those tax reliefs and their distributional impact on each income decile in the State, as well as details of the potential impacts or benefits of a shift from the current marginal rate system to a 30% system. I have supported for years the calls from the National Women's Council of Ireland and others for a universal pension system but I am attempting to be reasonable here by referring to doing, at a minimum, what we were asked to do back in 2009, which is moving to a standard rate approach of 30% and asking what the impact of that would be in terms of the costs to the Exchequer and the potential improvement in the context of gender and distribution.

The recommendations of the Commission on Pensions, which were largely based on the affordability of pension proposals, are not solidly credible in the end when affordability is calculated with €2.9 billion taken off the table and moved into the background every year. That is not credible if we are looking at modelling what is necessary and what are the hard choices. There are hard choices to be made around pensions, even though we have a younger population than most other EU countries, and those hard choices need to consider very high-income earners who have been getting lots and lots of money for years, which they will not lose if we make changes. Maybe that is not something we can afford to prioritise in the context of our pension policy as we move forward.