Title: Digging the Hole Deeper: The National Pensions Review and Tax Incentives for Pensions
1Digging the Hole Deeper The National Pensions
Review and Tax Incentives for Pensions
- Gerard Hughes
- Economic and Social Research Institute
- Presented at
- Pensions Forum 2006
- Dublin Castle Conference Centre
- 5 May 2006
2Overview of Presentation
- The pensions problem NPR proposals
- How effective are the State and the private
sector in delivering pensions? - Is the private pension system likely to pay
higher pensions? - How should we provide for pensions in the future?
3Percentage of Pensioners at Risk of Poverty in
the EU in 2001
4Projected Increase in Cost of Public Pensions in
EU15 between 2004 and 2050
5The Pensions Board Proposals
- No change in targets 50 RR pre-retirement
income 34 RR for State pension 70 coverage
rate for over 30s (NPR, p. 5 the OACP is now
below the risk-of-poverty line) - Give State incentive for PRSA as a 1 for 1
matching contribution rather than as a tax relief - Give tax relief for other private pension saving
at the higher rate for all personal contributions - Eliminate the fact-finding questionnaire required
at point of sale of standard PRSA - Give incentives to put proceeds of SSIAs into
pension saving
6Percentage of All Pensioner Units Receiving
Income from Each Source
7Percentage of Pensioners' Income Provided by Each
Source
8Incomes of Male and Female Single Pensioners
9Sources of Average Gross Income of All Pensioner
Units by Income Quintile
10Some Facts About the Private Pension System
- Coverage of occupational schemes
- All DB DC
- 1985 44 1992 33 5
- 2004 40 2004 27 13
- Approximately 30 DB schemes underfunded
- IAPF survey average DC contribution 10
(NPR p. 102. In the great majority of cases,
at present only members of DB schemes appear
to have a reasonable chance of achieving the NPPI
adequacy targets) - PRSA employee take-up Dec 2005 1.6 of labour
force
11Distribution of Pension Tax Relief on Employee
Self-Employed Contributions by Income Quintiles
Around 2000
12Approved Retirement Funds and Tax Avoidance
- Small Self-Administered Scheme set up.
- Value of the fund at retirement c. 100 million
- 25 of fund taken as tax-free lump sum
- Remaining 75 invested in an ARF
- The analysis does suggest, , that for those who
have the capacity to survive in retirement
without the need to rely on funds invested in an
ARF, our EET system of pension taxation is much
closer to an EEE system where effectively no
tax is paid, or if it is, it is at a low rate and
far into the future - DoF Section G Tax Relief for Pensions Provision,
p. G.22
13How Should We Provide for Pensions in the Future?
- Raise basic State pension to prevent poverty in
retirement - Reduce cap on pension contributions from 254,000
p.a. to a reasonable multiple of GAIE gradually
change the incentives to favour lower middle
income earners - Use additional revenue increase PRSI to pay for
increases in State pension - Gradually increase the retirement age, LFPRs, and
the skill level of the labour force