Commission on Taxation Pension Proposals

By Eoin Fahy, Monday, 7th September 2009 | 0 comments

The report of the Commission on Taxation, of which I am a member, was published today.  Below is a list of the main recommendations related to pensions, and a link to the report. 

  • The current system of tax relief at the marginal rate for pension contributions should be replaced by an Exchequer contribution of five-eights of the amount of the contribution (one euro from the government for every €1.60 contribution by the employee) for ALL contributors, irrespective of their marginal tax rate.  This makes pensions less attractive for higher earners but more attractive for non-taxpayers or lower rate taxpayers.  However, the Commission states that this should happen in the medium to long-term, not immediately, because the proposal is appropriate to a more stable economic and retirement savings environment than exists at the time of this report.
  • To encourage pension contributions, there should also be a "kick-start" provision whereby for the first five years of pension contributions, the government contribution would be higher (matching euro for euro).
  • A "soft mandatory" approach should be considered.  This is where it is compulsory for an employee to make contributions to a pension scheme at first, for a number of years, but they are allowed to opt out after a certain number of years. 
  • A Retirement Savings Scheme, similar to the SSIA scheme, should be introduced, with an Exchequer contribution.
  • There should be a correlation between the annual earnings limit and the standard fund threshold (these are both limits on pension tax relief for high earners).
  • Pension lump sums should continue to be exempt from tax for the first €200,000, and should be taxed at the standard rate above that amount.
  • The flexibilities of ARFs should be extended to Defined Contribution schemes.
  • Anomalies between different retirement schemes should be eliminated.
  • The tax regime for non-funded pensions [which generally exist only in the public sector] should be examined to identify the implicit tax cost to the Exchequer. 

The Report can be accessed at this link:  http://www.commissionontaxation.ie/Report.html

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