Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The following table provides a breakdown of the estimated cost of tax and PRSI reliefs relating to private pension contributions for 2007, the latest year for which the most up-to-date data is available. Figures have been rounded where appropriate. Estimate of the cost of tax and PRSI reliefs on private pension contributions 2007.

**Numbers of employees for whom employers are contributing to occupational pension funds as included in P35 returns to Revenue for 2007. Figures are as verified to date but may be understated and subject to revision.

I am advised by the Revenue Commissioners that while corresponding updates of the cost figures are not yet available for the tax year 2008 the necessary work to enable this to be done is ongoing. There is not sufficient data yet available to the Revenue Commissioners in relation to pension contributions in 2009 which would allow for full cost figures to be provided. No data is available for 2010.

Section 790AA of the Taxes Consolidation Act 1997 places a lifetime limit on the amount of a tax-free retirement lump sum that can be taken by an individual from 7 December 2005. This limit was set at 25% of the maximum tax-relieved pension fund (or standard fund threshold – SFT) and as at end-2010 the limit stood at about €1.35 million. Any balance of a retirement lump sum greater than this amount was liable to tax at the individual's marginal rate of income tax. The Revenue Commissioners' have no separate records of amounts paid to or received by them as income tax on lump sum payments in excess of 25% of the SFT.

Since most individuals likely to have been impacted by the provision would have had an option or choice to commute part of their pension benefits to a lump sum, they are likely to have chosen a lump sum amount at or below the limit. As announced in my Budget 2011 speech and to be included in the forthcoming Finance Bill, the maximum lifetime retirement tax-free lump sum is €200,000 as on and from 1 January 2011. Amounts in excess of this reduced tax-free limit are subject to tax in two stages. The portion between €200,000 and €575,000 is taxed at the standard rate of 20% while any portion above that is taxed at the individual's marginal rate of tax. The figure of €575,000 represents 25% of the new lower SFT of €2.3 million, which reduction was also announced in Budget 2011.

There is a view that a gradual reduction in the tax relief available on pension contributions as provided for in the recently published National Recovery Plan will encourage individuals to maximise their pension contributions in the coming years. On the other hand, alternative views have been expressed to the effect that as pension savings and the tax relief arrangements for those savings represent deferred income and deferred taxation, changes in tax relief may discourage pension savings. The argument in this case is that individuals liable to tax at the higher income tax rate, including those on modest incomes, may consider that it would not be in their interest to continue to make contributions at a gradually reducing rate of tax relief if there is a risk that the pension income they will ultimately secure from those contributions might be taxed at a higher rate, notwithstanding that this would not be the outcome for many of those affected. Clearly it is difficult to predict what the behavioural impact of the changes is likely to be.

The National Recovery Plan recognises the potential disincentive effect on supplementary pension provision of a reduction in tax relief to the standard rate and for this reason the Government has indicated its willingness to engage with the pensions industry to examine potential alternative approaches to securing the quantum of savings from pension tax expenditures set out in the Plan and this engagement has commenced.

An annual levy on pension funds is a potential alternative that could be considered in this regard. However, since pension funds are not subject to a levy at this time and since the investment income and gains of such funds are also exempt from tax, there is no requirement on pension fund managers or administrators, generally, to make returns to the Revenue Commissioners in respect of relevant data on pension funds under their management. I am not in a position in the absence of relevant data at this time, therefore, to provide reliable estimates of the yields from the application of a pension levy at the rates set out in the question.