Some 619,000 people got such tax relief in 2015, the latest date for which data is available.

Most of the contributions paid into pensions enjoy tax relief at the person's highest rate of tax.

So those paying income tax at 40pc get relief at that rate, but those paying tax at 20pc get lower levels of relief. A single person hits the 40pc tax rate on income as low as €34,550. The threshold is €43,550 for married one-earner couples.

The ESRI said the system could be changed by restricting tax relief on pension contributions to 20pc for everyone.

That would seriously impact workers currently on the higher rate, effectively halving the relief they enjoy.

Standardising the tax relief at 20pc would cost someone on €50,000 some €200 for every €1,000 put into a retirement fund. So a worker making the typical contribution of €2,500 a year would be down €500.

Mr Donohoe told Fianna Fáil finance spokesman Michael McGrath in a Dáil reply that "pension related tax relief represents a large and generous tax expenditure".

Mr McGrath said this must be protected. "According to the Revenue Commissioners, tax relief on employee pension contributions is availed of by 618,900 workers, a significant proportion of which avail of relief at the marginal rate of 40pc.

"Contrary to what some believe, a pension is not a luxury. Any change to the marginal rate of relief would represent a significant tax increase for middle Ireland and it is something we could not support."

Chief executive of the Irish Association of Pension Funds Jerry Moriarty said most of those who benefit from the tax relief earn close to average earnings.

"The biggest problem we have with pensions in Ireland is that we don't have enough people saving enough, and we need to focus on fixing that and not discouraging those who are saving."

The Department of Finance said in a statement: "In general, pension drawdown is taxed at prevailing tax rates through the income tax system in retirement. On this basis, it is considered that marginal relief represents a significant incentive to encourage pension savings and to a degree represents a deferral of taxation."

It added: "It should also be noted that tax policy is a matter for the Finance Minister and the Department of Finance, and, more broadly speaking, such matters are considered in the context of the annual budgetary cycle."

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