Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The Deputy has raised the important matter of plans designed to incentive young people to invest in retirement. Supplementary pensions have their own special treatment within the tax system to encourage these preparations, referred to as an exempt-exempt-taxed or EET system. Contributions to pensions, within certain limits, are exempted from income tax, pension fund gains are exempted from income tax and income from pension drawdown, other than a tax-free lump sum, is taxed.

While employment pension schemes form an important part of the supplementary pension landscape, there are other pension products such as Personal Retirement Savings Accounts (PRSAs). Introduced in 2002, a PRSA is a personal retirement savings contract which any individual can take out with an authorised PRSA provider, which allows individuals to save for their retirement in a flexible manner. Contributions to a PRSA benefit from the same tax relief available for pension schemes and the PRSA can grow tax free. As the savings can only be accessed at retirement the PRSA provides an alternate savings vehicle for young people to save appropriately for retirement.

I would also highlight that the National Treasury Management Agency (NTMA), through State Savings products, offers a wide range of tax free savings products to the general public, including Prize Bonds and fixed rate savings bonds/certificates. Both short term and long term fixed rate products are offered, with maturities from 3 to 10 years. The interest rates on offer are competitive and provide good value for the holders of State Savings products. The return for the saver rewards those who hold products to maturity. However, early redemption is also possible. The currently available tax-free State Savings products therefore allow the saver to invest in a competitive, flexible product which is tax free and afforded full State protection. The NTMA keeps these products under review.

I note the Deputy's query in relating to taxation of exchange traded funds. An ETF is an investment fund that is traded on a regulated stock exchange. A typical ETF can be compared to a tracker fund in that it will seek to replicate a particular index. ETFs, being collective investment funds, generally come within the regimes set out in the Taxes Consolidation Act 1997 for such funds. The domicile of the ETF will generally determine the applicable fund regime, specifically whether the ETF falls within the domestic fund regime or the offshore fund regime. Where the domestic fund regime applies, a ‘gross roll-up’ applies such that there is no annual tax on income or gains arising to a fund but the fund has responsibility to deduct an exit tax in respect of payments made to certain unit holders in that fund. To prevent indefinite or long-term deferral of this exit tax, a disposal is deemed to occur every 8 years. Where the offshore fund regime applies, the applicable tax treatment depends on the location and nature of the fund. Income and gains arising from investments into Irish and EU domiciled ETFs are subject to income tax at a rate of 41% on a self-assessment basis. Such income and gains are not subject to Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) liabilities. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors, liability to tax on gains from the fund will be determined in their home jurisdiction.

On 6 April 2023, I published the terms of reference for a review of Ireland’s funds sector and some related taxation issues. Among other issues, the review is examining three specific areas of taxation which were highlighted in the recommendations of the Commission on Taxation and Welfare. These issues are (1) the taxation regime for funds; life assurance policies and other related investment products; (2) the real estate investment trusts (REITs); and the Irish real estate funds (IREF) regimes and their role in the property sector; and (3) the use and scope of the section 110 regime. A public consultation was run in summer 2023. A progress update was subsequently published on 21 December 2023. The progress update highlighted the main trends, risks, challenges and opportunities facing the funds industry in Ireland out to 2030, as identified in the responses. The progress update also summarises proposals made in submissions in relation to the taxation of ETFs and for a tax-free/tax-advantaged retail savings and investment product. The review team will report to me in summer 2024 and I look forward to considering its findings at that point.