Retirement Savings

The Commission has recommended some significant changes to the taxation regime with regard to retirement savings.

Tax Relief for employee and self employed contributions

• The report recommends abolishing tax relief for self employed and employed contributions and replacing it with a matching Exchequer Contribution. The suggested rate of matching contribution is € 1 for every €1.60 invested by the individual irrespective of the marginal tax rate of the individual. The Commission recommends a “kick start” provision whereby there would be a higher matching Exchequer contribution in the early years and they suggest a rate of € 1: € 1 for the first five years of pension provision by an individual. A side effect of such recommendations is that employers would lose the existing PRSI relief for employee contributions.

Retirement SSIAs

• The report recommends a retirement savings scheme modelled on the SSIA Scheme. The suggested Exchequer contribution is € 1 for every € 2 contributed by the individual. It would not apply for any year in which the employee is in an employment covered by a defined benefit pension scheme. The maximum amount that can be contributed by the individual in any one year would be €2,200. Pre-retirement access to funds would be allowed in exceptional circumstances such as acquisition of a principal private residence or serious illness in such cases, the Exchequer contribution would be repayable. Any return earned on the amount saved would be taxable but the principal (i.e. amounts contributed by the individual and by the Exchequer) could be withdrawn on retirement without taxation.

Standard Fund Threshold

• The report recommends that there should be a correlation between the annual earnings limit for employed and self employed contributions and the cap on the size of pension funds at retirement.

Taxation of pension lump sums

• The report recommends that the tax free element of pension lump sums be capped at € 200,000 and that the balance should be taxed at the standard rate of income tax. Individuals who have pension funds with a potential lump sum well in excess of € 200,000 may wish to consider whether they can and should arrange an early exit from the scheme.

Contributions close to retirement

• It is recommended that the anti avoidance legislation be introduced to prevent the manipulation of contributions and salary levels in the final years of employment where this is designed to maximise this allowable pension on retirement.

Approved Retirement Funds (ARFS)

• The report recommends that ARFS be made available to all members of defined contribution occupational schemes but not to members of defined benefit schemes.
 
 

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