Dáil Éireann Debate, Wednesday - 24 March 2021
467. Deputy Bernard J. Durkan asked the Minister for Finance the basis on which it is concluded that the net pension entitlement of a person (details supplied) should result in more than 50% tax thereby adding a further burden to their serious health problem; if the matter will be urgently reviewed with a view to a more realistic payout; and if he will make a statement on the matter. [14975/21]
View answerI am advised by Revenue that an individual can take a tax-free lump sum from their pension pot – typically 25% of the lump sum, up to a maximum tax free amount of €200,000 - but the balance of the pension pot is subject to tax at appropriate rates. Pensions or payments from an Approved Retirement Fund (ARF) are taxed similarly to other incomes, in that an individual’s personal circumstances dictate the standard rate band and tax credits available, upon which their liability to tax is calculated. There are no ill-health provisions in tax legislation which relieve pension payments from the charge to taxation.
For example, in the current tax year, for a married couple or civil partners with one income, the first €44,300 is taxed at the standard rate of 20% and the balance of income at 40%. In addition, the couple are entitled to deduct personal tax credits from the resulting liability, such as the credit for married persons or civil partners of €3,300 and the employee tax credit of €1,650 (where payments are made via the PAYE system). They may also be able to claim tax relief for health expenses. Income from pensions or an ARF is also liable to Universal Social Charge (USC) and PRSI may apply depending on the age of the taxpayer. In some cases part of the payment may be subject to the higher rate of income tax plus PRSI and the USC, but the effective rate of tax on the overall payment will be much lower.
Payments from an ARF are subject to taxation by way of deduction at source under PAYE. In that regard, it is advisable that the taxpayer ensures that his correct entitlement is on record with his ARF provider to ensure the processing of any payment is carried out correctly with all the appropriate entitlements taken account of in the calculation.
The Deputy provided details of a specific taxpayer in his correspondence and I can confirm that Revenue have undertaken to review and ensure that the record and entitlements of the taxpayer are up to date and correct.
