Michael McGrath (Cork South Central, Fianna Fail)
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237. To ask the Minister for Finance to outline his views on the current penal tax regime that applies to deposit and pension savings which discourage persons from making provision for their future financial needs; and if he will make a statement on the matter. [10654/16]

Michael Noonan (Limerick City, Fine Gael)
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The Deputy may be aware that, subject to certain limits, contributions to pension schemes and products are relieved from income tax at the individual's marginal rate. This is a generous relief intended to encourage pension saving. The growth of pension funds is also exempt from tax. Upon retirement a person is generally entitled to a potentially quite sizable tax-free lump sum, with the remainder of pension benefits taxed at their marginal rate of income tax. Having regard to the above it does not seem to me that the taxation of pension savings in the country could fairly be described as "penal".

With regard to deposit savings, the Government decided to increase the rate of Deposit Interest Retention Tax (DIRT) (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).