Pension perks at risk as commission advises scrapping lower USC rates, tax reliefs and PRSI exemptions

The Commission on Taxation and Welfare has made a series of far-reaching recommendations that would help pay for the ageing population.

But if implemented they are likely to result in higher taxes for pensioners in the coming years in order to avoid punitive levies on the working age population.

The commission’s report, which has recently been delivered to Government, warns that the State faces major fiscal sustainability challenges due to considerable uncertainty over future corporation tax returns and the current “problematic” exclusion of large numbers of people from the personal tax system.

It calls for greater equity in the tax system by removing the preferential tax treatment given to retirees at present, including major reforms to the PRSI system to increase the amount being paid into the social insurance fund.

This would include ending the current exemption from PRSI for those aged 66 and over on all income they earn other than their social welfare payments. The PRSI exemption applied to supplementary pension income should be removed, the report says.

It also recommends that age should not be a factor in determining the rate of income tax and USC that a person pays.

At present, those aged 70 or over whose income is €60,000 or less pay a reduced rate of USC, while there are a series of income tax exemption limits and credits available to people over the age of 65.

The report recommends that the amount of USC a person pays should be determined by income level alone and not any other criteria.

The commission’s report says changes to the tax system should be introduced over time to minimise the negative impacts of such moves.

It argues taxation needs to shift away from levies on labour and instead focus on taxing capital, wealth and consumption in order to promote environmental targets and enhance the overall progressiveness of the tax system.

The Department of Finance estimates that the Government will need to find an extra €7bn to fund pensions and other age-related expenditure on public services by the end of the decade.

The commission also recommends extending PRSI to all sources of employment income including share-based remuneration for employees. It also suggests that welfare payments like maternity and illness benefits should be linked to an employee’s pay at the time they go on leave.

Details of the commission’s report, which has not yet been approved by Government and has no date for publication, come after the Irish Fiscal Advisory Council yesterday warned that younger workers face paying an extra €2,500 a year in taxes so people can retire at 66.

The Government has rejected the recommendations of the Pensions Commission to incrementally increase the retirement age to 68.

The Irish Independent revealed in July that the Coalition will keep the State pension age at 66, but people who continue working beyond that age would get a ‘bonus’ for each year they stay in employment.

Five different rates of pension would be paid to workers who retire up to the age of 70 under landmark reforms. There will be increases in PRSI contributions into the future to pay for the overhaul of the pension scheme.