Dáil Éireann Debate, Wednesday - 20 November 2013
53. Deputy Terence Flanagan asked the Minister for Finance the reason early access to AVCs incurs a tax of 41% regardless of the tax circumstances of the recipient; and if he will make a statement on the matter. [49669/13]
View answer54. Deputy Terence Flanagan asked the Minister for Finance the reason he is limiting early access to pension funds to those with AVCs; if he has considered extending limited access to other funded pension savings so that those persons who own the money invested may have help in the present economic climate in a similar way where access is allowed for certain health and other reasons; his views on whether limiting access to a person’s own money is unconstitutional; and if he will make a statement on the matter. [49670/13]
View answer55. Deputy Terence Flanagan asked the Minister for Finance if his attention has been drawn to the fact that the Irish Brokers Association representing 70% of all pension contributions here, the Irish Association of Pension Funds, and IBEC are supportive of providing limited early access to all pension funds, not just to AVCs; and if he will make a statement on the matter. [49671/13]
View answerI propose to take Questions Nos. 53 to 55, inclusive, together.
These questions all relate to early or pre-retirement access to pension savings.
I am advised by the Revenue Commissioners that section 782A of the Taxes Consolidation Act 1997 provides members of occupational pension schemes with a once-off opportunity to access their Additional Voluntary Contributions (AVCs), pre-retirement. The option is available for a three year period from 27 March 2013, the date that the Finance Act 2013 was passed into law.
I am further advised by the Commissioners that payments under the AVC access provision are taxable at the individual’s marginal rate. In that regard, however, under the legislation the administrator is obliged to deduct tax at the higher rate of 41%, unless the administrator has received from Revenue a tax credit certificate in respect of the individual. It is advisable, therefore, that if an individual is not using up any, or all, of his or her tax rate band and tax credits (for example if the individual is unemployed or in low paying employment) that he or she arranges to have a tax credit certificate issued to the administrator before draw down of the AVC payment, as this will ensure that the amount of tax deducted more accurately reflects the individual’s circumstances. A tax credit certificate may be obtained from the individual’s local Revenue office and will indicate the tax rate band and tax credits, if any, appropriate to the AVC access payment.
Where an individual considers that too much tax has been deducted from an AVC access payment, the overpayment of tax will be refunded on review.
There are a number of reasons why, under existing policies, pre-retirement access to the main benefits from pension plans or schemes is not permitted, the principal one being that these arrangements (and the associated tax reliefs on contributions and pension fund growth) are designed to be long term savings vehicles based on the principle that the benefits will be “locked away” to help fund an adequate income in retirement.
The pre-retirement access to a portion of AVCs which I introduced in Budget and Finance Act 2013 is allowed on a tax-neutral basis – the contributions were tax-relieved at the individual’s marginal rate on the way in and are taxed at the individual’s marginal rate on withdrawal. The take-up of the measure to date has not been particularly significant. I would remind the Deputy, however, that this is a measure which was designed to enable rather than incentivise individuals to access part of their pension savings beyond their regular or compulsory pension contributions. It is important that individuals continue to provide for their retirement and, it would appear, most individuals with AVCs have to date decided to preserve their AVC pension savings. For these reasons, I have no plans to extend the measure beyond AVCs.
The broadening of the early access to AVCs provisions did not emerge as a significant issue in the various pre-Budget submissions that I received during my preparations for Budget 2014.
