The Society of Actuaries in Ireland is pleased to publish the attached report on “Analysis of Fiscal Incentives for Retirement Savings – models and redistributive effects”.
Following a tender process, the Society commissioned Deloitte to carry out this research. The report includes an analysis of fiscal incentives for retirement savings in Ireland, comparisons with other countries that have well-established private pension systems and an analysis of the potential impact of certain changes that have been mooted. The Society is grateful to publicpolicy.ie for providing funding for this study.
The report examines the key components of the Irish pensions system, namely Pillar I, the public mandatory State-run social welfare system, and Pillar II, the private pension system. The analysis shows that:
- The system is both progressive and redistributive;
- There is a fiscal incentive for participation in a Pillar II arrangement, though not necessarily in respect of full earnings for those on relatively high salaries;
- Compared to a range of other countries with well-established Pillar II arrangements, the Irish pensions system is not unduly generous in terms of fiscal incentives and is more progressive than most;
- Reducing the income tax relief on employee contributions to standard rate would have a marked impact, making long-term saving less attractive for many people. In contrast, reducing the cap on pension benefits qualifying for tax relief would affect mainly high income earners.
This research is timely, given the many changes already made to fiscal incentives for retirement savings over the last few years and the choices facing Government as part of the National Recovery Plan.
The sustainability of the current State pension system is questionable. Now, more than ever, it is vital to encourage individuals to make provision for retirement. Any decisions on changes to the fiscal incentives should have regard to the potential impacts on people’s willingness to save for the long-term. Decisions should also have regard to the potential consequences in terms of Ireland’s attractiveness as a place to work.
We hope that this up-to-date research will contribute to a holistic approach being taken to policymaking on fiscal incentives for retirement savings in Ireland.