Tuesday, 25 June 2013

Questions (183)

Pearse Doherty


183. Deputy Pearse Doherty asked the Minister for Finance if he intends to take further steps on the treatment of private pensions, specifically with regards to the way they are taxed, for example, if he will look for pension tax reliefs to be standardised; for the earnings ceiling to be further capped; or consider increasing the imputed distribution rates from super pensions such as ARFs. [30652/13]

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Written answers (Question to Finance)

I indicated in my Budget 2013 speech that further changes in the tax treatment of supplementary pension arrangements for higher earners would be introduced next year. The examination and consideration of the various options for change are ongoing. I made clear in my Budget 2013 speech, however, that tax relief on pension contributions would continue at the marginal rate of tax. Alterations to the annual limits for tax-relieved pension contributions which are governed by an annual earnings limit in conjunction with age-related percentage limits would be one option for change, among others.

As regards Approved Retirement Funds or ARFs, I should point out that ARFs are not super pensions. ARFs represent a flexible alternative to the purchase of a pension annuity in drawing down pension benefits at retirement. ARFs are available, subject to certain conditions, to all individuals with Defined Contribution pension arrangements and my understanding is that the bulk of ARF owners have ARFs of modest value.

An annual imputed distribution rate of 5% applies to ARFs with asset values of €2 million or less and to ‘vested’ Personal Retirement Savings Accounts (PRSAs where benefits have commenced) on the same basis. A higher imputed distribution rate of 6% applies to ARFs and/or ‘vested’ PRSAs with asset values of more than €2 million. The deemed or imputed distribution measure is designed to encourage draw-downs from ARFs and ‘vested’ PRSAs so that they are used, as intended, to fund a stream of income in retirement in the same way as a retirement annuity. The measure, in itself, does not give rise to significant tax revenues as it does not apply to actual draw-downs from ARFs and ‘vested’ PRSAs, which are taxed in the normal way. Moreover, increasing the annual percentage notional distribution for ARFs and "vested" PRSAs as suggested in the question would further increase the risk that the retirement income derived by the owners from such funds could be depleted before death.