Dara Calleary (Mayo, Fianna Fail)
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26. To ask the Minister for Finance his views on whether the current penal tax regime that applies to deposit and pension savings is discouraging persons from making provision for future financial needs; and if he will make a statement on the matter. [23039/14]

Michael Noonan (Limerick City, Fine Gael)
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The Government decided to increase the rate of Deposit Interest Retention Tax (DIRT), which was previously 33%, to 41% in Budget 2014.  The higher rate of DIRT (previously 36%) for interest paid less frequently than annually was  abolished, and  all deposit interest is now liable to DIRT at the same rate (41%). Up to 2009, individuals may have been taxable on other income at the higher rate of income tax but were only liable to pay tax on interest income at 20%.  Previous DIRT rates were below the higher rate of income tax, and this, in effect, incentivised saving. The decision to raise the rate of DIRT was taken to encourage spending in the economy with a view to stimulating growth and employment and to raise additional revenues.  

Exemptions from DIRT may apply for the following persons in certain circumstances:

- Individuals aged over 65 (subject to income limits)

- Permanently Incapacitated Individuals

- Companies, Pension Funds and Charities (Irish resident companies pay tax on investment income at 25%- Non-Resident Account Holders

There are alternative savings products available which are tax free (Savings Bonds, Saving Certificates, Instalment Savings and the National Solidarity Bonds).  

A considerable number of individuals in the State are not making sufficient provision for their retirement through pension savings. This is not a recent problem and various reasons have been advanced to explain it but I do not believe that a view of the tax treatment of pension savings as penal can have been a factor in this area. Pension savings over the long-term are encouraged by the exemption from taxation  at the marginal income tax rate of ongoing contributions by individuals (subject to annual limits which increase with age). Investment growth of pension savings are also tax exempt while pension benefits are taxed on drawdown at marginal rates subject to a tax-free retirement lump sum up to a life-time maximum of €200,000.  Improving supplementary pension coverage is one focus of the recommendations included in the OECD's Review of the Irish Pension system which was commissioned by my colleague the Minister for Social Protection, Ms Joan Burton TD, and published last year. The Minister for Social Protection is developing a policy response to this and other recommendations in the Review.