BeeHive > BeeLines > 2009 > September > Tax Incentives and Pensions
Tax Incentives and Pensions
Two things; many thanks to all of you who have written in following my BeeLine on senescence to point out that two centuries are two hundred years in length and not three hundred. I couldn’t possibly find the time to write back to you all individually, but rest assured that I’ve got our top IT people looking at my calculator to see if they can work out what’s wrong with it. (Ms Bruun suggested that the problem could be that I’m not too hot at maths and stuff, but we’ve discounted that possibility.)
Thanks also to stalwart BeeLiners Malcolm (Chowman Mal) Deering and Roy (Hawkeye) Pearce for writing in to let me know about the recently published Irish Commission on Taxation Report 2009. That Commission has proposed tax relief changes on pension payments in a bid to make the tax treatment of retirement savings fairer. I found it quite interesting to read the report, particularly the bits where it suggests that people might save more if they are given generous tax incentives to do so; an idea there for our legislators over here to at least consider, surely? I also quite like the idea of a pension system that people might regard as treating them fairly; perhaps it will be called Treating Savers Fairly or TSF for short?
Anyway, in case you’re interested in seeing how pensions might be shaping up just over the water I’ve copied and pasted the section on retirement savings below for you to peruse. At the end of this BeeLine we’ve also added a link to the whole thing for anyone who’s interested in the full Monty.
Tax incentives for Retirement Savings
Our recommendations in this Part are as follows:
10.1 The regime for non-funded pensions should be examined to identify the implicit tax cost to the Exchequer in the context of an equitable distribution of the tax expenditure on pensions.
10.2 The current tax relief for personal retirement provision should in the medium to long-term be replaced by a matching Exchequer contribution of €1 for each €1.60 contributed by the taxpayer.
10.3 The matching contribution approach should be accompanied by a kick-start provision involving a contribution of €1 for each €1 contributed by the taxpayer in the first, say, five years of pension provision by an individual.
10.4 The matching contribution should apply where an individual has relevant earnings including where, because of the level of his or her earnings, the individual is not liable to tax.
10.5 A soft-mandatory approach could make a significant contribution to increasing pension coverage and should be considered.
10.6 An employee’s payslip should show the amounts contributed by the Exchequer to the employee’s retirement savings.
10.7 A retirement savings scheme along the lines of the former SSIA scheme, that is easily understood and which involves an Exchequer contribution, should be introduced – the scheme is outlined in Box 10.16 of Part 10.
10.8
• As the annual earnings limit does not apply to employer contributions, there is a need to retain the standard fund threshold.
• There should be a correlation between the annual earnings limit and the standard fund threshold, and the reduction in the annual earnings limit suggests that there should be a corresponding reduction in the standard fund threshold.
10.9 A lump sum taken on retirement should be liable to tax as follows:
• An amount of up to €200,000 should be tax free.
• The balance of the lump sum should be subject to tax at the standard rate of income tax.
10.10 The current tax relief rules should be reviewed to ensure that contributions and remuneration levels cannot be manipulated close to retirement to allow individuals to take advantage of unintended and inappropriate benefits.
10.11 Age-related limits on the amount of an individual’s relevant earnings should continue.
10.12 The flexibility of an ARF should be extended to defined contribution occupational pension schemes.
10.13 Anomalies in the treatment of different retirement arrangements should be eliminated as far as possible.
10.14 The various ages specified in the legislation governing the time at which benefits may commence should be reviewed and conformed.
The link to the full report is here (beware, it is a whopping 550 pages): Commission on Taxation Report Ireland 2009
10 September 2009
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