An interesting debate that surfaced last week on askaboutmoney.com, a personal finance forum, looked at a couple earning €36,000. Up to age 65,
they pay income tax of €2,250, universal social charge (USC) of €1,839 and pay-related social insurance (PRSI) of €1,440.
At 65 they are immediately €2,250 better off because the couple become exempt from income tax on the basis of their age and earnings. They also
become exempt from deposit interest retention tax on their savings.
At 66 they gain another €1,440 because at this age people stop paying PRSI. At 70 there is a further gain of €600 because they fall out of the 7% rate
of USC.
Their earnings are in good shape too because the bedrock of retirement earnings — the state pension of up to €12,000 per person — is the only core
social welfare payment that has not been cut. However, government has made it harder for pensioners to qualify for medical cards and slashed
subsidies for their energy and telephone bills and television licences.
Daring to question pensioners’ entitlements is a risky business, with emotions threatening to spoil the discussion on askaboutmoney.com. Cooler
heads were in control when the government’s Commission on Taxation examined the income tax exemption for pensioners in 2009. It concluded the
exemption should continue because the exchequer would gain little by taxing individual pensioners.
However, its analysis failed to take account of how valuable the exemption is for single-income couples, for whom it can mean substantial tax savings
when they reach 65, as seen by the example on askaboutmoney.com.
One of the justifications for being soft on pensioners is to provide some reward for the punishing taxes they paid in the 1970s and 1980s. Workers
currently paying 52% tax on earnings over €32,800 can only hope that future generations will be equally appreciative of their sacrifice.