Tuesday, 31 May 2005
Hospitals Building Programme.
I thank the Minister of State for staying to take my Adjournment motion. I put the question to the Minister for Social and Family Affairs, but it was referred to the Minister for Finance. That is somewhat of a problem for the two Departments in terms of which of them deals with pensions. Will the Minister of State provide me with a breakdown of the €2.5 billion tax breaks enjoyed by the pensions industry? This figure was given to me by the Minister for Social and Family Affairs during the debate on pensions last year.
However, there was some confusion when the Minister came to debate the ESRI report on pensions, when he said the tax breaks amounted to €1.5 billion. I had to remind him he had told me earlier the tax breaks were to the value of €2.5 billion. It is important that we should know where these tax breaks are going. It is not the ordinary man or woman in the street who is benefiting from them. They are benefiting the better off in our society.
When we are discussing pensions and planning to make them compulsory, with no guarantee of a return on that money, it is critical that we look at who is benefiting from the tax breaks. I remind the Minister of State that at a time when many PAYE workers are being told by employers that their defined benefits schemes are being wound up or are under-funded and they are being encouraged to take out defined contributions schemes, those same employers are making enormous contributions to their own pension funds and gaining very significant tax breaks. Some of these directors are adding €1 million a year to their pension schemes, while telling employees that their pension funds are being wound up. Therefore, tax breaks as regards pensions are grossly inequitable in the way they are dealt with by the Government.
For some people tax avoidance schemes involving pensions are probably the most beneficial mechanism ever devised for reducing tax liability. This needs to be looked at and made more equitable, so everyone benefits from these tax breaks which should not be just accessible to the wealthy. Such people are well off. Many company directors are on very good salaries to start with. I am more interested in ensuring PAYE workers have decent pensions when they retire. I hope the Minister of State can tell the House who is benefiting from these tax breaks. I doubt whether he will name the people who benefit, but I would like him to. At any rate, I want to know which schemes are benefiting and to what extent. Can he put a figure on the amount involved?
As I told the Minister for Social and Family Affairs, if all those tax breaks were to be cancelled and the same money put into old age pensions, they could be doubled overnight for every worker in the country. That might not be in the best interests of everybody but the tax breaks as set up at present are not fair and I would like this to be addressed. I want the Government to be open and transparent as regards who is benefiting from these tax breaks.
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.