Liam Twomey (Wexford, Fine Gael)
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Question 69: To ask the Minister for Finance if he is satisfied with the equity of tax relief provisions for pensions. [39150/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The State encourages individuals to supplement the social welfare pension arrangements with private pension arrangements by offering tax relief on private pension provision. The tax relief arrangements for private pension provision are long-standing and have helped a significant proportion of the workforce to provide for supplementary pensions thus reducing the pressure on the Exchequer to fund pension needs.

Tax relief is provided at an individual's marginal income tax rate on amounts contributed to pension schemes (subject to limits) and on the amount of profits and gains generated by the investments held by the pension schemes. Pension benefits payable on retirement are taxable subject to an entitlement to take a tax-free lump-sum cash benefit.

Over half of all people in employment are covered by voluntary private pensions and, while this proportion has not changed hugely in recent years, the absolute numbers covered have been increasing. The National Pension Policy Initiative target is for a coverage rate of 70% for people in employment aged between 30 and 65. The coverage rate is currently below this level. In the 2006 Budget and Finance Act, I introduced some changes which were designed to encourage older people and those on lower incomes to commence or improve their voluntary pension arrangements. These changes involve:

A Pension Incentive Tax Credit to encourage SSIA holders on lower incomes to put some or all of the proceeds of their accounts on maturity into a pension product. For each €3 invested in a pension product, the Exchequer will contribute €1 (to a max of €2,500) together with a proportion of the exit tax deducted from the SSIA on maturity.

An increase in the rate of age-based tax relief for pensions contributions to all pension products for contributors aged 55 years or over (i.e. from 30% to 35% of net relevant earnings/ remuneration for those aged 55 or over but under 60; and from 30% to 40% of net relevant earnings/remuneration for those aged 60 or over).

At the same time, I introduced other changes the purpose of which was to limit the cost to the Exchequer of tax relief provided to higher income earners. These changes are:

A cap on the value of a pension fund allowable for tax purposes of €5 million (or, if higher, the value of the fund on 7 December 2005).

A cap on the maximum value of the tax-free lump sum of €1.25 million which is 25% of the new maximum pension fund amount of €5 million.

In the same Budget I introduced, for the first time ever, a general restriction on the use by high earners of special tax reliefs of one type or another and I delivered what in real terms was described by the ESRI as a "highly progressive" Budget. Tax equity, both in relation to pensions and more generally, was therefore a major feature of my last Budget.