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Financial Resolutions 2013

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Budget Statement 2013

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Financial Resolutions 2013\Budget Statement 2013

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Budget Statement 2013

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Snippet Contents:

However, some people have been allowed by previous Governments to benefit from hugely generous pension arrangements subsidised by the taxpayer. While the Government wants to encourage those on lower and middle incomes to save for pensions, it will not allow pensions of the scale previously allowed to be accumulated at the expense of taxpayers whose actual earnings are, in many cases, a fraction of those large pensions.
I want to clarify the Government’s policy on a number of important issues. First, tax relief on pension contributions will only serve to subsidise pension schemes that deliver income of up to €60,000 per annum. This will take effect from 1 January 2014. Second, tax relief on pension contributions will continue at the marginal rate of tax. Third, the pension levy announced as part of the jobs initiative will not be renewed after 2014.
The current arrangements governing the maximum allowable pension fund at retirement for tax purposes of €2.3 million still allow for very generous pensions for higher earners through tax subsidised sources, particularly by way of defined benefit schemes in both the public and private sectors. Therefore, the necessary arrangements to give effect to the programme for Government commitment to effectively cap taxpayers’ subsidies for pension schemes that deliver income of more than €60,000 per annum will be put in place in 2014. Consultation on the specific changes required to the existing regime will continue with, among others, the pensions sector and Departments of Public Expenditure and Reform and Social Protection. The retention of marginal rate relief on pension contributions coupled with the proposed changes in maximum tax relieved pension pots will preserve and target tax relief to those providing for pensions up to €60,000 per annum.
Constitutional and legal constraints severely limit what steps the Government can take in relation to pensions already in payment. However, to ensure equity between all citizens based on their level of income, the reduced rate of the universal social charge introduced by the previous Government for those aged over 70 years with an income in excess of €60,000 will be discontinued from 1 January 2013 and the standard rate of the universal social charge will apply. In addition, in the interest of fairness, top slicing relief will no longer be available from 1 January 2013 on ex gratia lump sums in respect of termination and severance payments where the non-statutory payment is €200,000 or more. At present, the individual’s average tax rate for the previous three years applies to such lump sums rather than the marginal rate of 41%.
I have been advised in numerous submissions of the value of allowing limited early withdrawal from additional voluntary contribution, AVC, pensions. Therefore, in the Finance Bill I will make provision for persons with AVCs to withdraw up to 30% of their value. Any amounts withdrawn will be subject to tax at the individual’s marginal rate since marginal rate relief was provided on the contributions. The option will be available for a three-year period from the passing of the Finance Bill in 2013.
PRSI
The contributory State pension is one of the key benefits funded by PRSI contributions and it represents, together with other PRSI benefit payments, excellent value for money. This is especially so for those on the lower part of the income distribution, those with shorter contribution histories and the self-employed. PRSI contributions are progressive and redistributive because people at the higher end of the income distribution generally get back less than they pay in.
To ensure the stability of the Social Insurance Fund in order that it can continue to pay the pensions and benefits on which those earning the least are so reliant, there is a need to broaden the income base for PRSI. My colleague, the Minister for Social Protection, Deputy Joan Burton, will increase the minimum level of annual contribution from the self-employed from €253 to €500 and abolish the weekly allowance for employees. Both these measures will make a fairer link between the amount of contributions and the significant benefits received. The Minister will also bring forward legislation to change PRSI contributions as follows. Where modified PRSI rate payers have income from a trade or profession, such income and any unearned income they have will be made subject to PRSI with effect from 1 January 2013. Unearned income for everyone else will become subject to PRSI in 2014. This means PRSI will be payable on income generated from wealth such as rental income, investment income, dividends and interest on deposits and savings.