Richard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

Question 146: To ask the Minister for Finance the estimated annual cost to the Exchequer of increasing the mortgage interest relief rate to 25%, 30% and 35% from 2010 for all first time buyers (details supplied). [42546/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

It is assumed that the Deputy has in mind replacing the existing mortgage interest relief rates of 20%, 22.5% and 25% for first time buyers with rates of 25%, 30% and 35% respectively. I am informed by the Revenue Commissioners that sufficient data on mortgage interest relief is not available to enable a precise estimate to be provided of the cost to the Exchequer of the changes mentioned by the Deputy. However, based on projected 2009 claims and making certain assumptions about the levels of mortgage interest payments appropriate to first-time buyers in years one to seven of their mortgages, the full year cost is estimated to be of the order of €130m.

Richard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

Question 147: To ask the Minister for Finance the extra tax revenues that would be gained by cutting the annual earnings cap for pensions tax relief from €150,000 to €130,00 or €100,000; the extra tax revenues that would be gained by cutting the standard fund threshold for pensions from €5.4 million to €3 million or €2 million; and the extra tax revenues that would be gained by limiting annual tax free employer pension contributions to employee contributions. [42547/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The annual earnings cap of €150,000 operates to limit the level of tax-relieved pension contributions made by an individual or on behalf of an employee in any one year. The annual earnings cap acts, in conjunction with age-related percentage limits of annual earnings, to put a ceiling on the annual amount of tax relief an individual taxpayer can obtain on pension contributions.

The full year yield to the Exchequer arising from reducing the earnings cap to the amounts mentioned in the question are estimated as follows:

With regard to occupational pensions, (that is, schemes set up by the employer), the figures in respect of employee contributions are available only in aggregate form. Information on such contributions is not captured in such a way as to make it possible to associate contributions with individual income levels. For that reason the estimated yields to the Exchequer in respect of these contributions are extremely tentative.

The estimated yields are based on assuming that tax relief which would be affected by the changes mentioned in the question is currently allowed at the top income tax rate of 41% and at the maximum age-related percentage limit of earnings. The figures provided could therefore be regarded as the maximum Exchequer yield in respect of those taxpayers.

Employer contributions are generally not made to personal pension plans such as RACs and PRSAs. Data on employer contributions to occupational pension schemes are supplied annually to the Revenue Commissioners in aggregate form and not at the level of each individual employee. The employer contributions data are not therefore available in a way that would allow an adequate costing of the changes requested by the Deputy in this area to be made.

As regards the suggested changes to the Standard Fund Threshold, the position is that Budget and Finance Act 2006 introduced a maximum allowable pension fund on retirement for tax purposes. A limit of €5 million was placed on the total capital value of pension benefits that an individual can draw upon in their lifetime from tax-relieved pension arrangements. This is known as the Standard Fund Threshold (SFT).

A higher limit (the Personal Fund Threshold – PFT) was also introduced at that time for individuals whose pension fund values exceeded €5 million on the date the SFT was introduced, 7 December 2005. The PFT was deemed necessary on the grounds that those individuals with pension funds in excess of €5 million had built up those funds in good faith over the years while availing of tax reliefs available by reference to the law as it stood prior to the change and it would not have been possible to retrospectively deny them those reliefs.

The Finance Act 2006 also introduced indexation for both the SFT and PFT from 2007 onwards in line with an earnings factor. As a result, the value of the SFT for 2008 increased to over €5.4 million. Indexation did not occur in 2009 however.

As with the Budget 2006 change, any reduced SFT limits as proposed by the Deputy would have to take account of the pension funds of individuals that had been built up legitimately above any new limit. Consequently, any reduction in the SFT would be unlikely to have immediate effects in terms of Exchequer savings.