The 2006 Budget and Finance Act introduced an imputed or notional distribution of 3% of the value of the assets of an Approved Retirement Fund (ARF) on 31 December each year, where the notional amount is taxed at the ARF owner's marginal income tax rate. Funds actually drawn down by ARF owners are credited against the imputed distribution in any year to arrive at a net imputed amount, if any, for the year.
The imputed distribution measure was introduced because the internal review of tax relief for pensions provision undertaken by my Department and the Revenue Commissioners in 2005 (and which was published in early 2006) found that the ARF option was largely not being used as intended to fund an income stream in retirement, but instead was being used to build up funds in a tax-free environment over the long-term.
The 3% rate was phased in over the period 2007 to 2009, with 1% applying in 2007, 2% in 2008 and the full 3% in 2009 and each subsequent year. This regime applies to ARFs created on or after 6 April 2000 where the ARF holder is 60 years of age or over for the whole of a tax year. The provisions do not impact on Approved Minimum Retirement Funds (AMRFs), although funds drawn from an individual's AMRF can also be credited against the individual's imputed ARF distribution
The imputed distribution measure is designed to encourage the use of ARFs as intended and restricts the capacity of individuals to use ARFs purely as long-term tax-exempt vehicles. I have no plans at this point in time to change or alter the current legislation.