Seán Fleming (Laois, Fianna Fail)
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262. To ask the Minister for Finance the reason people in receipt of the State pension have to pay income tax on this in situations where they have a separate pension from their previous employment; and if he will make a statement on the matter. [5947/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 19 of the Taxes Consolidation Act 1997 (TCA 1997) provides that income from offices or employments, and from annuities, pensions, or stipends payable out of State funds, is within the charge to tax under Schedule E. In addition, section 126 (2) TCA 1997 specifically provides that State Pension (contributory) are deemed to be emoluments to which Chapter 4 of Part 42 applies.

Accordingly, the State pension (contributory) and any occupational pensions are subject to tax under Schedule E.

The State pension is paid gross to the recipient. Where an individual is in receipt of the State pension from the Department of Social Protection (DSP) and also has an additional source of income, such as an occupational pension, generally the mechanism used to collect the tax due on the State pension payment is by reducing the individual’s annual tax credits and rate band by the annual amount of their State pension income. Tax due on both the State pension and any additional income will therefore be deducted from the additional income, only.

It is important to point out that the current tax arrangements for persons aged 65 or older compare favourably with the tax treatment of the generality of taxpayers. For example, the age tax credit is available to persons aged 65 or over, and reduced rates of USC apply for persons aged 70 or older where their total income is €60,000 or less per annum. Furthermore, the State Contributory Pension and the State Non-Contributory Pension are not chargeable to USC or Pay Related Social Insurance.

Finally, the Commission on Taxation and Welfare recommended that age should be removed as a factor for determining the charge to income tax and USC as it narrows the base and breaches the concept of horizontal equity. Further details are set out in the Report of the Commission, at the following link - www.gov.ie/en/publication/7fbeb-report-of-the-commission/.