Peadar Tóibín (Meath West, Aontú)
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579. To ask the Minister for Finance his plans to make joining a private pension scheme more advantageous to the ordinary worker and that relief is not only on PAYE but also on PRSI and USC for employee pension contributions and that age related thresholds are revisited so that younger employees can be encouraged to join. [19284/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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Pension contributions already benefit from significant tax benefits, which are designed to encourage long term savings. Ireland operates an Exempt, Exempt, Tax (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 is taxed other than a tax free lump sum. This approach provides generous tax relief intended to encourage individuals to save appropriately for retirement.

I would note that responsibility for PRSI lies with the Minister for Social Protection. However, the Universal Social Charge (USC) is within the scope of my responsibility. The USC is an individualised tax, meaning that a person’s liability to the tax is determined on the basis of a person’s own individual income and personal circumstances. It is applied at a low rate on a wide base, which ensures that it is a stable and sustainable source of revenue for the State. Removing pension contributions from the scope of the USC would impact on the base for the USC. In 2016 joint Department of Finance/Economic and Social Research Institute (ESRI) research found that the USC represented a more stable form of revenue than income tax. The findings highlighted that USC revenues would fluctuate by less than income tax revenues whenever income is volatile, for example where the economy moves from a boom into a bust. Given the openness of the Irish economy and consequent susceptibility to economic shocks, the contribution that the USC makes to the stability of the State’s revenue sources is considerable. It also worth noting that the USC has played a vital role in meeting the many expenditure demands placed on the Exchequer. The USC yield was c. €5.7 billion in 2024, and a projected yield of €5.6 billion is expected in 2025.

Regarding the age-related thresholds for pension contributions, I would note that under the current rules an individual aged up to 30 can receive tax relief for contributions up to 15% of their relevant earnings (subject to an overall earnings cap of €115,000), with the limit increasing to 20% for ages 30-39. Therefore under the existing system it is possible for young people to make significant tax-relieved contributions to a pension. However, I am cognisant that this issue was recently considered in the context of the recent examination of the Standard Fund Threshold (SFT). The report of the examination, published in September 2024 included a recommendation that the age-related limits for pension contributions be removed. This recommendation remains under consideration by my Department.