This document summarizes a presentation on tax expenditures related to occupational pensions in Ireland. It finds that over half of pensioner income comes from state pensions and occupational pensions make up nearly 28% of income on average. Pension contributions are concentrated among high earners, with 11.5% contributing over €10,000. The total estimated cost of tax expenditures on pension contributions is €759 million, which is skewed to higher income groups. The presentation models reforms like standardizing tax relief rates and imposing earnings limits, finding they could reduce costs by €147-374 million while making the system more progressive.

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Micheál Collins
Gerry Hughes
Tax Expenditure on
Occupational Pensions
in Ireland:
relevance, cost & simulating reform
NERI Seminar Series, 28th September 2016
Outline
1. Introduction
2. Data
3. The Income of Pensioners
4. Pension Contributions
5. The Cost and Distribution of Tax Expenditure
6. Comparisons, Context & Policy
7. Policy Simulations
8. Conclusion
1. Introduction
• A research project on pensions, pension contributions
and associated tax expenditures
• Building on previous assessments; ‘fiscal welfare’
• Objective here:
o establish the role of pensions (various) in pensioners
income
o estimate the distribution of tax expenditure on pension
contributions
o Draw some evidence based policy recommendations
o Policy simulations
2. Data
• SILC
o 2014 microdata used
o 5,486 households and 14,078 individuals
o sample weights to make nationally representative
o detailed income data
o data on pension contributions…
• Modelling
o Using SILC 2014 as a basis
o Derive tax cases (individuals and couples), marginal tax
rates, tax credits etc
o Simulations based on this
o Robustness checks indicate it is representative

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3. The Income of Pensioners
Terms:
• Private pensions = private plans…not employment related
• Occupational pensions = pension scheme of
company/organisation
• Old age related payments = various social protection
payments
Income Category Average Average
Employee Income 1.9% 359.67
SE Income 4.9% 941.41
Private pension income 4.4% 847.75
Occupational pension 27.9% 5,373.82
Old‐age related payments 53.1% 10,222.32
Rent income 1.8% 355.71
Investment income 2.0% 385.67
Other direct income 0.0% 1.72
Housing allowances 2.3% 445.89
Other social transfers 1.7% 323.02
Gross Income 100.0% 19,256.97
4. Pension Contributions
• SILC data allows us to examine 3 types of pension
contributions:
o employee into occupational pensions = employee
o employer contributions for individuals = employer
o private pension contributions = individual
• Employee contributions include PRD
o Include PRD for public sector workers
o This has been modelled and removed
• Contributions in:
o Nominal terms €
o % of earnings = employee and self-employment income

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All sources:
21% < €1,000
46% = €1k‐€5k
32% > average
11.5% > €10,000
All sources:
21% < €1,000
46% = €1k‐€5k
32% > average
11.5% > €10,000

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5. The Cost and
Distribution of Tax Expenditure
• We have overall Revenue data (improving…) • Modelling €759m of tax expenditure

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• Some assumptions to establish an initial estimate
• 2014 tax year
o Modelled tax cases and determined marginal tax status
o One of three: 0%, 20%, 41%
o have individuals total pension contribution
• after adjustment for PRD
• not modelling employer contribution
o can estimate tax expenditure cost
o Models well when benchmarked to admin data (Revenue)

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€22
€5
6. Comparisons,
Context & Policy
Limits on Percentage of Earnings
Employees Contribute to Private
Pensions, 1996‐2016
Annual Absolute Earnings
Employee Contribution Limit (€),
1999‐2015

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Annual Limit on Size of
Individual Pension Fund (€),
1999‐2015
Earnings Limits on Employee or
Employee (Ee) & Employer (Er)
Pension Contributions to Occupational
Funds in OECD Countries, 2015
What Should Caps Be on Earnings
Contributions & Lifetime Size of Fund?
Changes in 2009 -2013 still leave Ireland with highest limit
on earnings contribution in OECD countries which impose
limits
But limits apply only to employee contribution
“Changes could be made to the terms of employment contracts, due
to the reduction in the annual earnings cap, to provide for a switch
from employee contributions to employer contributions.”
(Minister for Finance, written reply to PQ 6 Oct. 2009)
Earnings cap should apply to combined employer and
employee contribution & should take account of integration
of State and private pension benefits

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Earnings Cap & Integration of
State and Private Pension Benefits 7. Policy Simulations
• Modelling the impact of some reforms:
o Standard rating of tax expenditure (20%)
o Hybrid rate (31%)
o All at the higher rate (41%)
o Marginal rate but earnings limit of twice average earnings
• Comparisons to structure and revenue forgone cost of
2014 tax expenditure (as modelled)
o First round effects – no behavioural change
Standard rating (20%)
Mean Relief Median Relief Tax Forgone Cost Change v 2014 baseline
€802 €396 €413m ‐€374m
Hybrid rate (31%)
Mean Relief Median Relief Tax Forgone Cost Change v 2014 baseline
€1,243 €613 €640m ‐€147m

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All at higher rate (41%)
Mean Relief Median Relief Tax Forgone Cost Change v 2014 baseline
€1,644 €811 €846m +€59m
An earnings limit (€72,180)
& relief at the marginal tax rate
Mean Relief Median Relief Tax Forgone Cost Change v 2014 baseline
€1,228 €689 €632m ‐€155m
8. Conclusion
• Pension costs = €2.5b + €5b
• Distributions of Tax Expenditure skewed
• Contrast to profile of public pension recipients
• Reform of private pension system:
o Slow and often stymied
o Small reduction in regressive shape of pension tax
expenditure compared to 2005
o Would need more radical policies to address regressivity
o If not standard rating, then other 2nd best reforms (as we
suggest)
o Pathway to fairer and better use of these resources
Micheál Collins
Gerry Hughes
Tax Expenditure on
Occupational Pensions
in Ireland:
relevance, cost & simulating reform
NERI Seminar Series, 28th September 2016