THOUSANDS of pensioners will escape a new tax on their savings, the Irish Independent can reveal.
Mr Noonan had outlined plans for PRSI to apply to this money, referred to as unearned income, from January 2014 without signalling any exceptions.
But it has now emerged that pensioners will be spared, while workers will have PRSI applied at 4pc.
Mairead Hayes, chief executive of the Irish Senior Citizens Parliament, welcomed the news, saying it would be a pleasant surprise for hard-up pensioners.
The move on unearned income is in addition to the PRSI changes in the Budget that will cost every worker €264 a year.
The self-employed already pay PRSI on unearned income, and Mr Noonan said this would be extended to those in the PAYE system.
PRSI cash funds state pensions, unemployment benefits, maternity benefits and illness payments.
Mr Noonan announced plans to tax maternity benefits from next summer.
People over 66 do not currently have to pay PRSI on their pensions or any other income.
Applying the measure to pensioners – especially to the income they receive from savings – would hit them hard. A large chunk of the €87bn in household savings in banks and the €15bn in state savings schemes is held by pensioners.
Deposit interest retention tax (DIRT) will be increased to 33pc next month. Adding PRSI into this will mean PAYE workers under 66 will end up paying 37pc on any interest they earn from savings from 2014.
Now pensioners will only pay DIRT on any interest they earn from savings in banks and credit unions.
However, those over the age of 70 who earn more than €60,000 have already been hit in the Budget. They are to have higher levels of the universal social charge imposed on them.
Most pensioners benefit from favour-able tax treatment compared with those still in work. The over-65s get more generous tax exemptions and an age-related tax credit of €245 for a single person and €490 per couple.
This means that taxpayers under 65 earning €40,000 pay €2,800 more in taxes than those over 65.
Mr Noonan said the PRSI changes announced in the Budget would bring in €339m for the Exchequer each year, but the Opposition complained that lower-income families would be the losers.
At the moment workers do not pay PRSI on the first €127 of weekly income. From the start of next year employees will pay PRSI at 4pc from €1 of income.
Ms Hayes said she had not been aware that PRSI would not be imposed on rental and interest income for over-66s.