Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance the savings that could be made for the Exchequer if the Standard Fund Threshold the maximum allowable pension fund for tax purposes was reduced from €2.3 million to €1 million. [44514/12]

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

The Standard Fund Threshold (SFT) is the maximum allowable pension fund on retirement for tax purposes which was introduced in Budget and Finance Act 2006 to prevent over-funding of pensions through tax-relieved arrangements. The SFT was reduced in Budget and Finance Act 2011 by over 50% to a level of €2.3 million with effect from 7 December 2010 with transitional arrangements to protect the capital values of the pension rights of individuals where these exceeded the reduced SFT on that date. There is currently no underlying data available to my Department or to the Revenue Commissioners on which to base reliable estimates of the savings from a further significant reduction in the SFT to the level indicated in the question. Information on the numbers and values of individual pension funds or on individual accrued benefits are not generally required to be supplied to the Revenue Commissioners by the administrators of pension schemes and personal pension arrangements. The estimated savings indicated at the time in respect the Budget and Finance Act 2011 change in the SFT were quite conservative, based as they were, on incomplete data and using very broad assumptions. Indeed those underlying data and assumptions may not be directly applicable to determining the effect of a further significant decrease.

My Department has been engaging with representatives of the pensions industry with a view, among other things, to gathering private pensions-related data which may be of value into the future in estimating the costs of potential changes in the pensions’ tax area.

These engagements are ongoing.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance the amount that could be raised for the Exchequer if the cumulative lifetime limit for tax free retirement sums was reduced from €200,000 to €100,000. [44515/12]

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

The following arrangements currently apply to retirement lump sums paid under pension arrangements approved by the Revenue Commissioners. Lump sum amounts up to €200,000 are paid free of tax. They are also paid free of USC. The portion of a lump sum between €200,001 and €575,000 is taxed on a ring-fenced basis at 20%. This means that no tax credits or other tax reliefs can be set against this portion of the lump sum. No USC is chargeable. Any amount of a lump sum in excess of €575,000 is taxed at the individual’s marginal rate of tax (credits and other tax reliefs are available). In this instance, USC is chargeable on the excess. These amounts are lifetime amounts with prior lump sums aggregating with later lump sums. I assume from the Deputy’s question that he is proposing that retirement lump sums in excess of €100,000 be taxed as outlined above. As there is no general requirement for data on the number of persons who are receiving payments of retirement lump sums of less than €200,000 to be returned to my Department or to the Revenue Commissioners, I am not in a position to provide definitive figures on the Exchequer impact of reducing the tax-free retirement lump sum amount from €200,000 to €100,000.

As an exercise that might provide some indication of the scale of the savings involved, it is estimated that just over 33,000 individuals in the public service would be on salaries of over €67,000 and less than €133,500 which, under existing pension scheme arrangements generally applying across the public service, would deliver retirement lump sums of between €100,000 and €200,000 to persons retiring after a full 40 year career. If it is assumed that these individuals would retire in line with retirement trends from the public service in a normal year (about 2.5%), then the additional tax yield from taxing lump sums in excess of €100,000 at 20% could be about €8 million in a full year.

I have no data on which to provide a similar estimate in relation to the private sector. I should point out, however, that one significant difference between public sector and private sector pension schemes is that private sector schemes invariably allow scheme members the option of commuting part of their pension fund for a tax-free lump sum. The option of receiving benefits in the form of pension only is not available to members of public sector schemes. Depending on the impact of any tax charge on retirement lump sums, the option to commute part of a pension fund may no longer be exercised by private sector pension scheme members or may be exercised in a manner that reduces the value of the lump sum taken to minimise or avoid any immediate tax charge.