IDEAS home Printed from https://ideas.repec.org/a/eso/journl/v49y2018i3p319-359.html
   My bibliography  Save this article

An Analysis of Taxation Supports for Private Pension Provision in Ireland

Author

Listed:
  • Shane Whelan

    (University College Dublin)

  • Maeve Hally

    (University College Cork)

Abstract

The size and distribution of the taxation supports for private pension provision has been a contentious issue. Research produced or commissioned by representative groups of the pensions industry in Ireland maintains that the tax supports are merely tax deferment, and the effective tax relief is lower than the ‘headline’ relief on pension contributions. Research by the OECD, on the other hand, suggests that pension savings are essentially tax free to the majority of pension savers. This paper estimates the value of the favourable tax treatment to private pensions provision, expressed as a percentage of the original amount invested, and analyses how it varies with income level, gender, saving period, and other factors. The net effective tax relief on pension savings on each Euro invested in a private pension is estimated by comparing the increase in the present value of pension savings over the lifetime of the individual when compared to other savings. We report that the net effective relief is considerably higher than estimated by the widely cited industry research, and depends on the value of the pension fund at retirement. We identify three distinct groups of individuals in the current regime of incentivising pension savings: those on low incomes who are offered no incentive, the standard rate tax-payers where the net effective tax relief is about 25-30 per cent, and the higher rate tax-payers where the net effective relief is about 31-51 per cent. We argue that current regressive taxation supports for pension savings should be reformed, and reformed before the proposed imminent introduction of an auto-enrolment retirement saving scheme.

Suggested Citation

  • Shane Whelan & Maeve Hally, 2018. "An Analysis of Taxation Supports for Private Pension Provision in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 49(3), pages 319-359.
  • Handle: RePEc:eso:journl:v:49:y:2018:i:3:p:319-359
    as

    Download full text from publisher

    File URL: https://www.esr.ie/article/view/980/197
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Phil Agulnik & Julian Le Grand, 1998. "Tax relief and partnership pensions," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 403-428, November.
    2. Agulnik, Philip & Le Grand, Julian, 1998. "Tax relief and partnership pensions," LSE Research Online Documents on Economics 4652, London School of Economics and Political Science, LSE Library.
    3. Cooper, D. R., 2002. "Family Fortunes — A Guide to Saving for Retirement," British Actuarial Journal, Cambridge University Press, vol. 8(5), pages 849-885, December.
    4. Michelle Norris, 2013. "Varieties of Home Ownership: Ireland’s transition from a socialised to a marketised policy regime," Working Papers 201306, Geary Institute, University College Dublin.
    5. Le Grand, Julian & Agulnik, Philip, 1998. "Tax relief and partnership pensions," LSE Research Online Documents on Economics 51408, London School of Economics and Political Science, LSE Library.
    6. Kwang-Yeol Yoo & Alain de Serres, 2004. "Tax Treatment of Private Pension Savings in OECD Countries and the Net Tax Cost Per Unit of Contribution to Tax-Favoured Schemes," OECD Economics Department Working Papers 406, OECD Publishing.
    7. Micheál L. Collins & Gerard Hughes, 2017. "Supporting Pension Contributions Through the Tax System: Outcomes, Costs and Examining Reform," The Economic and Social Review, Economic and Social Studies, vol. 48(4), pages 489-514.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doorley, Karina & Callan, Tim & Regan, Mark & Walsh, John R., 2018. "The tax treatment of pension contributions in Ireland," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    2. Ilanit Gavious & Tehila Kalagy & Shenhav Malul & Rami Yosef, 2022. "A Reform in Tax Benefits for the Israeli Pension Market," Israel Economic Review, Bank of Israel, vol. 20(1), pages 51-93.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Micheál L. Collins & Gerard Hughes, 2017. "Supporting Pension Contributions Through the Tax System: Outcomes, Costs and Examining Reform," The Economic and Social Review, Economic and Social Studies, vol. 48(4), pages 489-514.
    2. repec:esr:chaptr:jacb200756 is not listed on IDEAS
    3. Callan, Tim & Nolan, Brian & Walsh, John R., 2007. "Pension Priorities: Getting the Balance Right?," Papers BP2008/2, Economic and Social Research Institute (ESRI).
    4. Sergio Cesaratto, 2011. "The macroeconomics of pension reform: The case of severance pay reform in Italy," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(1), pages 69-89.
    5. Bercholz, Maxime & Bergin, Adele & Callan, Tim & Garcia Rodriguez, Abian & Keane, Claire, 2019. "A micro-macro economic analysis of pension auto-enrolment options," Papers WP640, Economic and Social Research Institute (ESRI).
    6. repec:zbw:rwirep:0170 is not listed on IDEAS
    7. Ginn, Jay & Fachinger, Uwe & Schmähl, Winfried, 2007. "Reformen der Alterssicherung und der sozioökonomische Status Älterer in Großbritannien und Deutschland [Pension reform and the socioeconomic status of older people in Britain and Germany]," MPRA Paper 3189, University Library of Munich, Germany.
    8. Immacolata Marino & Filippo Pericoli & Luigi Ventura, 2011. "Tax Incentives and Household Investment in Complementary Pension Insurance: Some Recent Evidence From the Italian Experience," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 14(2), pages 247-263, September.
    9. M. Martin Boyer & Philippe d’Astous & Pierre-Carl Michaud, 2019. "Tax-Sheltered Retirement Accounts: Can Financial Education Improve Decisions?," Cahiers de recherche 1902, Chaire de recherche Industrielle Alliance sur les enjeux économiques des changements démographiques.
    10. Pierre-Carl Michaud & Frederic Vermeulen, 2006. "A Collective Labor Supply Model Identification and Estimation in the Presence of Externalities By Means of Panel Data," Working Papers 406, RAND Corporation.
    11. Mejra Festić & Jože Mencinger, 2009. "The Perspective of Pension System Reforms in the New Member States," Prague Economic Papers, Prague University of Economics and Business, vol. 2009(4), pages 291-308.
    12. Gerard Hughes, 2001. "The Cost and Distribution of Tax Expenditure on Occupational Pensions in Ireland," Papers WP139, Economic and Social Research Institute (ESRI).
    13. Börsch-Supan, Axel, 2004. "Mind the Gap: The Effectiveness of Incentives to boost Retirement Saving in Europe," MEA discussion paper series 04052, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    14. Gerard Hughes, 2002. "Private Pensions and Equity in Ireland and the U.K," Papers WP142, Economic and Social Research Institute (ESRI).
    15. World Bank, 2014. "Poland : Saving for Growth and Prosperous Aging," World Bank Publications - Reports 20441, The World Bank Group.
    16. Agustin Redonda, 2016. "Tax Expenditures and Sustainability. An Overview," Discussion Notes 1603, Council on Economic Policies.
    17. Isabelle Joumard & Mauro Pisu & Debra Bloch, 2012. "Less Income Inequality and More Growth – Are They Compatible? Part 3. Income Redistribution via Taxes and Transfers Across OECD Countries," OECD Economics Department Working Papers 926, OECD Publishing.
    18. Martin, John P. & Whitehouse, Edward, 2008. "Reforming Retirement-Income Systems: Lessons from the Recent Experiences of OECD Countries," IZA Discussion Papers 3521, Institute of Labor Economics (IZA).
    19. Corneo, Giacomo & Keese, Matthias & Schröder, Carsten, 2010. "The effect of saving subsidies on household saving: Evidence from Germany," Discussion Papers 2010/3, Free University Berlin, School of Business & Economics.
    20. Börsch-Supan, Axel & Quinn, Christopher, 2015. "Taxing pensions and retirement benefits in Germany," MEA discussion paper series 201510, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    21. Michelle Norris & Michael Byrne, 2016. "Social housing's role in the Irish property boom and bust," Working Papers 201615, Geary Institute, University College Dublin.
    22. Corneo, Giacomo & Keese, Matthias & Schröder, Carsten, 2008. "Can governments boost voluntary retirement savings via tax incentives and subsidies? A German case study for low-income households," Economics Working Papers 2008-18, Christian-Albrechts-University of Kiel, Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eso:journl:v:49:y:2018:i:3:p:319-359. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Aedin Doris (email available below). General contact details of provider: https://www.esr.ie .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.