Report of the Interdepartmental Pensions Reform & Taxation Group 2020 Prepared by the Interdepartmental Pensions Reform & Taxation Group www.gov.ie Report of the Interdepartmental Pensions Reform & Taxation Group Contents List of Figures ..................................................................................................................................... iv Executive Summary ............................................................................................................................ v 1. Introduction & Background ........................................................................................................ 1 Roadmap for Pensions Reform 2018-2023 ....................................................................................... 1 The Interdepartmental Pensions Reform & Taxation Group ............................................................. 1 Roadmap Actions Allocated to the IDPRTG ..................................................................................... 2 History of Reform Initiatives............................................................................................................... 2 Consultation Process ......................................................................................................................... 3 Data ................................................................................................................................................... 4 2. Domestic Pension Environment ................................................................................................ 5 Demographics and other Secular Trends in Pensions...................................................................... 5 Demographics ................................................................................................................................ 5 Growth, Productivity & the Investment Environment ..................................................................... 6 Domestic Policy Context for Reform ................................................................................................. 7 Automatic Enrolment ..................................................................................................................... 8 Overall Vision ................................................................................................................................. 9 Sustainability ................................................................................................................................ 10 Guiding the Reform Process ....................................................................................................... 11 3. Reform & Simplification ............................................................................................................ 13 Objective and Background .............................................................................................................. 13 Actions Addressed ........................................................................................................................... 14 Consultation General Feedback ...................................................................................................... 14 Impact on Third Pillar of Introduction of Automatic Enrolment System .......................................... 15 Existing Supplementary Pension Landscape .................................................................................. 15 Second Pillar Occupational Schemes Incl. Small & Single Member Schemes .......................... 16 Third Pillar Products: Retirement Annuity Contracts ................................................................... 18 Third Pillar Products: Buy-out Bonds .......................................................................................... 19 Previous Efforts to Streamline Third Pillar Provision ................................................................... 20 Transitional Requirements............................................................................................................... 20 Proposals for Simplification and Harmonisation ............................................................................. 20 RACs and BOBs to be discontinued on a Prospective Basis ..................................................... 21 PRSA Amendments to Fulfil RAC / BOB Functions .................................................................... 22 The Pan-European Personal Pension Product – PEPP ............................................................. 25 Proposed Revisions to the PRSA ................................................................................................ 26 Vested PRSA and PRSA as a whole-of-life product ................................................................... 28 Drawdown Ages ........................................................................................................................... 28 Definitions of Ill-Health ................................................................................................................. 29 Lump Sum Rules ......................................................................................................................... 30 Prepared by the Interdepartmental PensionsFunding Reform Rules & Taxation ................................ Group .............................................................................................. 31 www.gov.ieDeath -in-Service Rules ................................................................................................................ 33 Report of the Interdepartmental Pensions Reform & Taxation Group 4. State Support for Supplementary Pension Saving ................................................................ 35 Objective and Background .............................................................................................................. 36 Actions Addressed ........................................................................................................................... 36 Consultation General Feedback ...................................................................................................... 37 Existing system of pension taxation ................................................................................................ 37 Demographic Change .................................................................................................................. 37 Pensions & State Intervention ..................................................................................................... 38 International Experience of Financial Incentives ......................................................................... 39 Development of Tax Relief for Pension Saving in Ireland ........................................................... 40 Existing EET system in use in Ireland ......................................................................................... 43 Cost of Funded Supplementary Pensions to Exchequer ................................................................ 47 Data & Methodological Challenges ............................................................................................. 47 Revenue Foregone Method ......................................................................................................... 48 Alternative Methods to Estimating Costs of Pension Tax Expenditures ..................................... 55 Data Capture ................................................................................................................................... 57 Conclusions ..................................................................................................................................... 57 5. Measuring Success: Coverage & Adequacy .......................................................................... 59 Objective and Background .............................................................................................................. 59 Actions Addressed ........................................................................................................................... 60 Consultation General Feedback ...................................................................................................... 60 Coverage ......................................................................................................................................... 61 Adequacy ......................................................................................................................................... 66 Equity ............................................................................................................................................... 70 Income Level Distribution of Tax Relief on Contributions (Vertical Equity) ................................ 70 Broader/Systemic Conceptualisation of Equity ........................................................................... 72 Gender ......................................................................................................................................... 73 PAYE, Self-Employed and Proprietary Directors (Horizontal Equity) ......................................... 76 Public Sector ................................................................................................................................ 77 Automatic Enrolment ....................................................................................................................... 78 Background to Automatic