Dáil Éireann Debate, Tuesday - 16 October 2012
184. Deputy Richard Boyd Barrett asked the Minister for Finance the amount of tax that was foregone due to relief in approved retirement funds for each of the past four years; and if he will make a statement on the matter. [44298/12]
View answerApproved Retired Funds (ARFs) form part of the regime of flexible options on retirement first introduced in 1999. ARFs are not pension schemes per se. They are investment options into which the proceeds of certain pension arrangements can be invested on retirement. Under the “ARF option” individuals are entitled to take their retirement lump sum and, with the balance of their pension fund, purchase an annuity, invest in an ARF or take the balance in cash subject to tax. Where the ARF route is chosen, beneficial ownership of the assets in the ARF vests in the individual. ARFs are managed by Qualifying Fund Managers and any investment income or capital gains arising are exempt from tax while the funds are invested in the ARF. There is no requirement on Qualifying Fund Managers who hold and manage ARFs on behalf of individuals to provide data to my Department or to the Revenue Commissioners in relation to the value of ARF assets, the numbers of ARFs held by them or, in the context of the question, on the accrued income or gains arising from the investments in such funds. I am not, therefore, in a position to provide the definitive statistical data requested by the Deputy.
Electing to invest in an ARF or to receive the balance of a pension fund in cash are subject to conditions. The conditions include the requirements that the individual be over 75 years of age or, if younger, that the individual has a guaranteed level of pension income (“specified income”) actually in payment for life at the time the option is exercised.
Finance Act 2011 increased the “specified income” limit from the previous fixed amount of €12,700 introduced in 1999, to a variable amount equal to 1.5 times the maximum annual rate of the State Pension (Contributory) at the time the option is exercised, bringing the “specified income” limit to €18,000 per annum at present. This is the only income requirement attaching to the qualifying conditions for an ARF at retirement.
I should point out that sums withdrawn from an ARF are subject to tax at the individual ARF-owner’s marginal income tax rate. The 2006 Budget and Finance Act introduced an imputed or notional distribution of 3% of the value of the assets in an ARF on 31 December each year, which notional amount is taxed at the ARF owner’s marginal income tax rate. This measure was introduced because the internal review of tax relief for pensions provision undertaken by the Department of Finance and the Revenue Commissioners in 2005 found that the ARF option was largely not being used, as intended, to fund an income stream in retirement but, in certain cases, was being used to build up substantial funds in a tax-free environment over the long-term. The imputed distribution measure is designed to encourage the use of ARFs, as intended, in the way of actual draw downs being made which are subject to tax.
The annual imputed distribution of ARF assets was increased from 3% to 5% in Budget and Finance Act 2011 in respect of asset values as at 31 December 2010 and future years. It was further increased from 5% to 6% for ARFs with asset values in excess of €2 million at 31 December 2012 and future years. I am informed by the Revenue Commissioners that there was a yield of about €11 million from the taxation of the annual imputed distribution of ARF assets for 2011.
