Peadar Tóibín (Meath West, Sinn Fein)
Link to this: Individually | In context

Question 66: To ask the Minister for Finance if his attention has been drawn to the fact that, according to the 2009 ESRI research series No. 14 on pension policy, 82% of all pension tax relief goes to the top 20% of income earners; his views on the accuracy of this figure; and his further views that this is an appropriate outcome of his current pension tax relief policy. [14234/11]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

I assume the Deputy is referring to the ESRI report entitled "Pension Policy: New Evidence on Key Issues" which was published in November 2009. I am not in a position to question the data on which the Report based its findings. I am informed by the Revenue Commissioners that a breakdown of official data on contributions to pension saving arrangements across income ranges is available only to a limited extent. With regard to occupational pensions (that is, schemes set up by the employer), the figures in respect of employee and employer contributions are available only in aggregate form on a tentative basis. Information on such contributions is not required to be provided on an individual basis and is therefore not captured in such a way as to make it possible to provide disaggregated figures.

Actual data is available in respect of the cost of tax relief across income ranges on pension contributions made to Retirement Annuity Contracts (RACs) and Personal Retirement Savings Accounts (PRSAs) by self-employed individuals and individuals in non-pensionable employment, to the extent that such individuals submit claims for tax relief to the Revenue Commissioners in their annual income tax returns. The latest relevant information is in respect of the income tax year 2008.

The information set out in the tables below provides the number of cases, amount of deduction and reduction in tax for tax relief for RACs and PRSAs for the various contribution ranges. The information is based on income returns contained in Revenue records at the time the data were compiled for analytical purposes, representing in the region of 90% of all returns expected. A married couple who have elected or are deemed to have elected for joint assessment are counted as one tax unit.

On the basis of the tabulated figures the highest earning 20% of claimants for tax relief on contributions to RACs obtain 69% of the tax relief. The corresponding position in respect of PRSAs is that the top 20% of highest earning claimants obtain 59% of the tax relief.

The value of tax relief on pension contributions that an individual can obtain in any year is a function, among other things, of the amount of contributions he or she can afford to make and the individual's marginal income tax rate. The level of tax relief is also limited for higher earners, in particular, by the operation of an annual earnings cap which operates in conjunction with age-related percentage limits to determine the maximum annual tax-relievable contributions for pension purposes. Since 2009, that annual earnings cap for pension tax relief purposes has been reduced by over 58% from over €275,000 per annum to €115,000. Moreover, the maximum allowable pension fund for tax purposes that an individual can avail of over their lifetime was reduced by about an equivalent amount in Budget and Finance Act 2011 from just over €5.4 million to €2.3 million.

The Deputy might also bear in mind, as the ESRI report itself states, that tax relief on pension contributions is of greatest value to those with incomes high enough to pay the top rate of tax. An individual does not have to be a significantly high earner to be obtaining tax relief at the higher rate at the present time. Information is provided in the following tables.