IRELAND - The Irish taxation commission has proposed tax relief changes on pension payments in a bid to make the tax treatment of retirement savings fairer.
The main elements of the proposed model include matching contribution - whereby all contributions towards supplementary retirement provision should qualify for a matching Exchequer contribution of €1 for each €1.60 by the taxpayer.
The commission said that support could be given at a higher rate, €1 for each €1 given by the taxpayer, for a limited period for all supplementary pension contributions.
The model would include a soft-mandatory approach, where employers would automatically enrol employees into the scheme, although an employee is entitled to opt out later.
The commission also proposed a retirement savings scheme as part of the plan, similar to the former special savings incentive accounts (SSIA) scheme.
It said this would be a simple scheme that would allow savings for retirement, based on a minimum savings requirement. It would include an Exchequer contribution of €1 for every €2 saved and would allow limited pre-retirement access to funds.
The commission also considered the tax-free status of the lump sum on retirement, which it said may act as an incentive to individuals to save for their retirement.
However, it then said that the payment of a lump sum "defeats to some extent the purpose of a pension which is to provide an income in retirement." As a result, it said that it is considering that changes should be made to the tax treatment of the lump sum.
At present, people are allowed a tax-free lump sum of 25% of the fund, or 1.5 times the final salary. The commission has suggested that the first €200,000 of that lump sum should be tax-free and that the excess of that lump sum over €200,000 should be taxable at the standard rate.
Although the report considered how the tax system can encourage long-term savings to meet retirement needs, it said that taxation policy on its own cannot resolve the "increasingly onerous pension issues that will confront our society over the coming decades."
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