Róisín Shortall (Dublin North West, Labour)
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Question 145: To ask the Minister for Finance the estimated cost or saving to the Exchequer from the proposal in the national pensions framework to change tax relief provisions on pension contributions; if he will provide a breakdown on the savings to the Exchequer of reducing tax relief on pension contributions to 33% for those paying tax at the upper rate and increasing tax relief to 33% for those paying tax at the standard rate. [22280/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Tax relief on individual pension contributions is currently allowed at the taxpayer's marginal income tax rate, that is, at the standard or higher rate of income tax as appropriate in each case. Tax relief at 33% would result in a reduction in the tax relief on pension contributions available to higher rate taxpayers and an additional incentive to pension savings for standard rate taxpayers.

The Government agreed, in the revised Programme for Government, that a new pension savings incentive will be set at a rate equivalent to 33% tax relief rather than the existing marginal rate relief. This commitment is now included in the National Pensions Framework. The Framework also makes clear that PRSI and Health Levy relief on pension contributions will be in addition to the 33% rate of tax relief and the mechanism for delivering this relief will be developed during the implementation phase of the Framework.

A breakdown of the cost of tax relief on employee contributions to occupational pension schemes is not available by income tax rate, as tax returns by employers to the Revenue Commissioners of employee contributions to such schemes are aggregated at employer level. An historical breakdown is available by tax rate of the tax relief claimed on contributions to personal pension plans — Retirement Annuity Contracts (RACs) and Personal Retirement Savings Accounts (PRSAs) — by the self-employed and others, to the extent that the contributions have been included in the personal tax returns of those taxpayers. The latest data available in this regard are figures in respect of the tax year 2007.

There is, therefore, no statistical basis for providing definitive figures on the costs or benefits involved in moving to a 33% rate of relief. However, by making certain assumptions about the available information, it is estimated that the overall full year yield to the Exchequer from allowing tax relief at a flat rate of 33% in respect of individual contributions to occupational pension schemes, RACs and PRSAs would be about €115 million. It is assumed that tax relief at the flat rate of 33% would also be available to claimants who are currently confined to tax relief at the standard rate of 20%. The estimated yield of €115 million is broken down between estimated savings to the Exchequer of approximately €185 million from reducing the tax relief on pension contributions for those paying tax at the higher income tax rate and an estimated cost of approximately €70 million from increasing the tax relief for those paying tax at the standard rate. The estimated Exchequer saving assumes no change in the current relief arrangements for PRSI and health levy on pension contributions and takes no account of the economic or behavioural impacts which would occur as a result of a change in tax treatment as envisaged in the question.

Róisín Shortall (Dublin North West, Labour)
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Question 146: To ask the Minister for Finance the estimated savings to the Exchequer where the maximum possible tax-free pension pot was reduced to €1.5 million, €2 million, €2.5 million, €3 million, €3.5 million and €4million. [22281/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I assume the Deputy is referring to the Standard Fund Threshold in respect of which 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.

On the assumption that, as with the Budget 2006 change, any reduced SFT limit would have to take account of the pension funds of individuals that had already been built up legitimately under existing arrangements that would then be above any new limit, any reduction in the SFT would be unlikely of itself to have immediate effects in terms of Exchequer savings.

Róisín Shortall (Dublin North West, Labour)
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Question 147: To ask the Minister for Finance the estimated savings to the Exchequer where the maximum tax-free lump sum taken at retirement was reduced to €100,000, €125,000, €150,000 and €175,000. [22282/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In my 2010 Budget Statement I said that I accepted the Commission on Taxation's recommendation that retirement lump sums below €200,000 should not be taxed. I further indicated that the tax treatment of retirement lump sums above €200,000 would be considered in the Government's National Pensions Framework. This position is reflected on page 41 of the Framework document published in March 2010 which states that "arrangements for the tax treatment of lump sums greater than €200,000 would be considered and developed during the implementation of this framework".

As indicated in the National Pensions Framework, there are a number of fundamental issues which have yet to be considered in this process, including, among other things, the appropriate rate of tax (standard, higher or other) that should apply to lump sum payments in excess of €200,000. There are also gaps in the availability of data on retirement lump sum payments which make the costing of changes in this area problematic at this point in time. In these circumstances, I am not in a position to provide the estimated savings requested by the Deputy at this time.