Éamon Ó Cuív on pension tax change: 'murderous trick' for lower earners

I think very few people will be paying no tax because at £20,000 your personal tax credits would still mean that you'd be paying 20% on that last bit of income. I think there's a murderous trick here that's unfair. I think you more or less allude to this. And let's put it in simple terms. At the moment, if I'm paying 40% tax on my salary, and you hit 40% at a fairly low individual income in this country, if I put 100% into my pension pot, 100% goes into the pension pot and there's no tax. Now under this system, if I'm on the 40% and the marginal part of my tax, I don't have to have much income at 40%, and I put 100 euro in, 40% is taken off, so now I've only got 60 euro to invest. And I get a kickback of another 15 euro, because it's a quarter of the 60, which means that, for my trouble, even though I'm a lot less well off than the person on the 100,000 or 200,000 that's putting in and getting 40% kickback, I'm getting 75 euro into my pension pot, and the person with a very high income is getting 100, for the same 100 euro out of the salary. And I think my mathematics is correct. Right. Now, So, if I'm on 20% tax. Just, Dr. Lowenstreet might just answer that, if it is correct, because I think it'll probably have a bearing on where Deputy O'Keefe is going. Just, potentially, so, I think, as far as I understand the scheme, it is still that you will, you know, you won't get the tax rate, but I think it effectively equates, the 15 euro that you mentioned, I think it equates as 25 euro, is my understanding of the scheme, because that would be my understanding of how it's going to work. I have 100 euro, right? Take it out. And I want to put, right, money into my pension pot to order enrollment, right? So, before I do that, I'm on the marginal rate tax, so to take 40 euro off that, so, put another way, to put 100 euro in, I have to go to 130 or something, 140 euro, right? So, if I just say, I'm putting 100 euro in this week, if, sorry, if I say I want to put 100 euro aside, the tax members say, well, sorry, halt, I want 40 that, now you have only 60 left. I put the 60 in, I get a kickback of a quarter of that, that's 15, and 15 and 60, 75, where my neighbor, was able to put the 100 euro in, and had the 100 euro in the pot. So, both of us took 100 euro, I mean, metaphorically, out of our wallet, in cash, and rather than doing it all, in paper transactions, and one wound up, with 75 euro in the pot, and the other, with the same 100 euro, winds up with 100 euro. Now, to me, that's, I think I'm correct. Yeah, just comment on that, and I'll let you back in again, because I think this, this is very significant, for us all, in relation to, to the operation of this. So, I think it's important, when you're looking at the tax relief, that you get on pensions, on the way in, to also look at, the tax paid on the way out, because, in effect, the current scheme, what it is, is you get the relief, at your marginal rate, on the way in, but then I think it's important, to think about, well, what rate you're going to be paying, on the way out, right? But is Deputy O'Keeve, right, in relation to his mathematics, on the way in? I accept, it's different, because there's a different tax treatment, on the way out, but, the argument I think Deputy O'Keeve, is making, is, that you have a fund, to buy, and invest, at 100 euro, compared to a fund, at 75 euro. So, is the issue, sorry, in terms of, the rate of relief, that's being applied, or is it just in terms, of the cash amount, is that your concern, in terms of the equity? Well, my concern is, that like a lot of things, in this country, the state's more generous, to the well-off, than the poor, right? And that there's a mirror's trick, because people, think they're getting cash back, yeah, they think, I mean, it's a salesman's trick, or a salesperson, we shouldn't be, we have to be, more correct about that, it's a salesperson, a salesperson's trick, and life is full of those, but you don't normally expect, the state to get into, salesperson's tricks, and what I'm saying is, the previous proposal, had been, was, at one stage, was, that everyone would get, tax relief, for 33%, on the end, whereas, it's still a lot more money, for the high end, at least percentage-wise, it was the same, now, in this case, if you hit the 40%, at all, you're, you're, you're, you're getting robbed, to put it bluntly, right? Now, I couldn't understand that, about the trick, now, about the exempt exempt, my understanding is, at the moment, we take two people, one's putting it in, private pension fund, they're exempt putting in, the other one is taxable, putting in, but gets a bit of a kickback, but it's not as good, as the tax relief, if you're on 40%, it's about the same, and 20%, and there's nobody on 0%, because, the reason I gave, now, I presume, that both are equal, that the, the income earned from the scheme, is tax relief, although, we saw during, the crisis, what happened on that one, and then coming out, you pay tax, at the marginal rate of tax, and presumably, this income is as taxable, as any other income, I believe that's correct, yeah, right, now, if that is so, it is, a rather, presumption, presumptive presumption, particularly taking, the odds of people's lives, and various sources of incomes, and all the rest, and so on, to presume, that the person, who put it into, our enrollment, doesn't wind up paying, 40% tax, on the way out as well, on the total, accumulative income, and if they don't, that's because, they have a low income, yes, right, so anybody, who puts into, a private pension fund, that winds up paying, 40% tax, only does so, on the normal basis, that at any income, if the higher you go, the more tax you pay, so, I think the out, and the exempt part, is the same, because the income, is treated the same, it's only, the quantity, that might be different, therefore, I still maintain, that there's a middle district, being played on people here, and that, the steam, is a bad deal, particularly, for that, middle income group, now, can you clarify also, that if you get a couple, so, I've now got a couple, and one of the couples, is earning a very good interest, income, so they will get, presumably, tax relief from that, but the other is, not an enrolment, that they will be treated, individually, for that, and that they, they won't get the, tax relief, and, the partner, well, in the case of, tax at the moment, you have to be legally married, so, I'm going to say, the spouse, because that is, the legal situation, you have to be in a, civil partnership, or a legal marriage, so, it doesn't, count for cohabiting couples, at the moment, that the situation, then is, that the person, on the, the auto enrolment, wouldn't get any, relief, on their, investment, but would get, the kickback instead. Yes, that is my understanding, of how the scheme, is going to work, and something, we talked about a little bit, earlier on, about how, that is one aspect, and one kind of complexity, that the scheme introduces, is that you can have, couples with the exact same, income, and exact same, maybe, distribution of income, between partners, and then they get, different levels of relief, depending on whether, one person, in the couple, is in an AE, or a more traditional, private pension scheme, so yeah, that's I think, one bit of complexity, that. Yeah, but does it not also say, just one final, you know, and I'm looking at this, because this is the way, people look at it, the industry, your industry, look at things in the global, but people always look at it, me, me, me, that, if somebody came in to, any of the, atachtas members here, for a bit of advice, and said, should I stay in or get out, and they're on, the first question asked, well, what tax rate are you paying, 40% or 20%? And if you were consistently paying, 40% tax, you'd say, well, I would talk to a financial broker, but, along that, the private pension, will give you the same return, as the other pension, certainly from a tax point of view, you'd be better getting out, and going, and putting the same amount of money, in the private pension fund. Yeah, look, I think, Deputy very well describes the complexity, I think that is potentially being introduced here, and, and, as I said in the opening statement, this isn't necessary, in order for automatic enrolment, to achieve its aim, right? In a way, we can separate out these two things, we know from the evidence, in other countries, that automatic enrolment works, and lifts the level of private pension coverage, because it changes the default option, and people, and the group that we're looking at, are people who might necessarily pay attention, to those pension affairs, and, effectively, automatic enrolment works, because it changes the default choice, the default choice is in, rather than out, and that's why it lifts private pension coverage, one doesn't need, these additional changes, I think, from the evidence that we've seen out in other countries, to achieve that, I think, and a better way of approaching it, might be to look down the road, in three, four, five years time, and we say, are there still groups, that we are worried about, are under saving, and if there are, maybe we can design something, tailored specifically to those, rather than necessarily, this kind of broad, change to the scheme of taxation, for all the reasons, that the Deputy outlines, and that it does create, a lot of complexity, and again, in terms of then, I think in a way, this is kind of trying to achieve, or achieve two objectives, right, one is to lift the level, of private pension coverage, and the other is, to change the system, of marginal rate relief, and those two things, I think, can be separated out, and on the one, I think, will work, automatic enrolment will work, will lift private pension coverage, there's lots of details, kind of around that, but it will work, but on the second, I think there's a broader conversation, that needs to be had there, and as part of that conversation, one of the things I highlighted, earlier on, is, really the biggest, I think, example of a mistargeted, relief, from the tax system, is the tax free lump sum, and so that's something, that the Commission on Tax and Welfare, has focused in on, something as well, that we've written about, at the SRI, that that is really not, a well designed, or well targeted, incentive, at encouraging, the people who are worried, about not saving enough, to save enough, rather the beneficiaries, of those, are those who are going to get, you know, one point something times, their final salary, as a big lump sum, and by virtue of being able, to get 200 grand, of that tax free, in the next 300 grand, at 20% relief, that's where, really, I think the focus should be, in terms of restricting tax relief, rather than necessarily, changing the marginal rate, relief scheme, which I think is, broadly works quite well, I think there's some bits around that, in terms of the PRSI treatment, in particular, right, so we give, at the moment, depending on what type of contribution, we, most of the contributions, that we made to pension schemes, have gotten PRSI, haven't had PSRI paid, on the way in, and because we don't charge PRSI, on the incomes, of those over 66, that's actually one of the departures, from the exempt, exempt tax kind of model, and there are ways, that one could address that, in the sense that, one could look at levying, PRSI on the incomes, of those over 66, right, and that's something, but again, that's kind of a separate discussion, to that of automatic enrolment, and I think that's, the issue around tax relief, the issue around the tax free lump sum, the issue around PRSI, that's all something, which I think we can kind of, almost in a way, think of as separable, to the issue of automatic enrolment, and will it work? Did anyone cast, what it would cost, just keeping the very narrow confines, of the tax relief, versus, the, state contribution, I think they call it, has anyone cast, what it would cost, to do that at 40%, and give, a little bit of a bonus, to the 20% taxpayers, I think we're agreed, there are very few, nil taxpayers, here, and, and, you know, a little bit of generosity, those at the bottom, rather than, skim flinting, and those who might be, on the 40% tax, and still in the auto-erolment system, we would also allow, for better continuity of pension, sorry, that's my last question. Dr. Rowntree has, addressed this earlier on. Apology Deputy, I didn't mean to interrupt there, so we haven't, done that, I think in principle, it is doable, maybe the best people to do it, might be revenue, or Department of Social Protection, so it is something, I think that is knowable, it's not something, that we have done, but in terms of, what the Deputy suggests, in terms of, a tax objective problem, something that we've, suggested in previous work, has been, rather than necessarily say, change the margin rate relief, put ever not 20%, to 40% relief, rather to do something, like an SSIA type scheme, so it's more kind of, you know, for, something like, what is being proposed, but on a smaller, selected base, right, but in addition to the tax relief, thing, so that gets at the group, that you're concerned about, those people who maybe, are paying 20%, getting 20% relief, on the way in, and are maybe only paying 20% on the way out, and if you're worried about them, it's kind of, again, it's almost something, that I think, could be come back to, in two, three, four years, whatever it is, and we could look at that group, and say, well, these guys, we're still worried about them saving too little, here's some SSIA type scheme, that we target specifically, at those people. What I'm suggesting though, much similar, I like simple things, because, I think most politicians, maybe put in the crinkles here, and then, when they come, we could, because in fairness, Dr. Rowntree has gone through this twice, so if we could, because we're under price of time. What I'm suggesting is, why wasn't that 25% made 40%? I suppose, I suppose we have to ask, the Department of Social Protection for that, and I guess, you have to weigh up, the cost of the state, because it's not just a cost this year, it's a cost in perpetuity, of when this runs, and that's, that's the kind of work that we can do, we can look at, you know, in the past, I think I've looked at, giving rate of the 33, giving really 33%, and I suppose, they're, they're political decisions, and that's the whole decision, around changing the entire tax relief, but I think what Barra is pointing out, is that you don't, you don't even have to go, you know, if we want to sort of, get auto-enrolment underway, you don't even have to, to touch that at the start, it's something else, that could be looked at separately, if we want to question, is the relief fair, or you know, again, there are political decisions, around, you know, redistribution, and providing relief, but you don't need, those sort of release, to get people into pension schemes, as Barra said, just defaulting them in, will do that.