Róisín Shortall (Dublin North West, Labour)
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Question 293: To ask the Minister for Finance the steps he will take to deal with the actions of persons who, as alleged in paragraph 5.5.6 of part 10 of the Commission on Taxation report 2009, avoid the pensions contribution cap introduced in budget 2009 by arranging for their employer to make contributions in excess of these relevant limits; and if he will make a statement on the matter. [33685/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Tax relief on employee contributions to occupational pension schemes are subject to age-related percentage limits and to an overall annual earnings limit. This annual earnings cap was introduced in the tax year 1999-2000 at an amount equivalent to €254,000. Finance Act 2006 introduced indexation of the annual earnings cap from 2007. For the 2008 tax year, the annual earnings cap for pension contribution purposes stood at just over €275,000. In budget 2009 and Finance (No 2) Act 2008 the annual earnings cap for 2009 was reduced to €150,000.

The annual earnings cap and age-related percentage limits for pension contribution purposes referred to above do not apply to employer contributions to occupational pension schemes but only to employee contributions.

The Commission on Taxation report makes the point that changes could be made to the terms of employment contracts, due to the reduction in the annual earnings cap, to provide for a switch from employee contributions to employer contributions. In addition, it should be noted that a review of tax relief for pension provision was carried out jointly by the Revenue Commissioners and the Department of Finance in 2005 and a report of that review was published in February 2006. Following consideration of the report and the options for change included therein, a number of significant changes to the tax regime for pensions were included in budget and Finance Act 2006. The fact that employer contributions to occupational pension schemes are not included within the employee age-related percentage limits and the overall earnings cap on pension contributions, was identified as an anomaly in the review.

However, the review identified difficulties with including employer contributions within the limits and it was considered that the imposition of a limit on the maximum allowable tax-relieved pension fund would be as effective in curtailing abuse of the tax relief arrangements, without giving rise to the difficulties identified in the review. As a result, the budget and Finance Act 2006 introduced a limit on the total capital value of retirement benefits that an individual can drawdown in their lifetime from tax-relieved pension arrangements with penal tax charges for funding over the limit. The limit (technically known as the "Standard Fund Threshold" or SFT) was introduced at an amount of €5 million subject to indexation and is currently valued at its 2008 level of just over €5.4 million. As detailed in budget 2009, no adjustment for indexation was made to the SFT for 2009. The value of the SFT is subject to ongoing review as part of the normal budgetary process.