Tax relief on public and private pension contributions in Ireland

This report provides an up-to-date assessment of the scale and distributional impact of tax relief on public, occupational, and private pension contributions in Ireland. Using SWITCH, the ESRI’s tax-benefit microsimulation model, we quantify the cost of tax relief under the current Exempt-Exempt-Taxed (EET) system relative to a counterfactual Taxed-Exempt-Taxed (TET) benchmark. We incorporate explicit contributions made by employees and employers as well as implicit contributions made by the State as employer on behalf of public sector employees. We find that total pension-related tax relief amounts to approximately €6.1 billion annually, with implicit relief on government contributions representing the largest component. We find that the existing structure of tax relief on pension contributions is regressive, with higher-income households benefitting proportionately more due to higher contribution rates, greater access to occupational schemes, higher marginal tax rates, and age-related contribution limits. The findings have important implications in the context of Ireland’s auto-enrolment system, which introduces a more progressive State top-up, equivalent to 25% tax relief. This analysis highlights avenues for future research on the taxation of pension drawdown and behavioural responses to pension tax reliefs.