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Irish Real Estate Fund

Dáil Éireann Debate, Tuesday - 6 November 2018

Tuesday, 6 November 2018

Questions (172)

Thomas P. Broughan

Question:

172. Deputy Thomas P. Broughan asked the Minister for Finance if he will report on the review of retirement funds; the way in which budget 2019 increases in the State pension may impact on pensioners with an approved managed retirement fund; and if he will make a statement on the matter. [44710/18]

View answer

Written answers

I am advised by Revenue that under Part 30 of the Taxes Consolidation Act 1997 (TCA) an individual in a defined contribution pension savings arrangement has the option of putting the funds accumulated under the arrangement into an Approved Retirement Fund (ARF) on retirement, subject to conditions.

Where, at the time of exercising an option, such an individual is under the age of 75 and does not meet the requirement in section 784C(4) TCA of having a minimum guaranteed pension income for life of €12,700 per annum, which may include a pension payable under the Social Welfare Consolidation Act 2005, s/he is required under that section to set aside an amount of €63,500 (or the remainder of the pension fund if less than €63,500 after taking a retirement lump sum) by investing the amount in an Approved Minimum Retirement Fund (AMRF) or by the purchase of an annuity. The purpose of the AMRF is to ensure that an individual, who does not have a minimum guaranteed pension income for life, has a capital nest-egg to provide for the later years of his or her retirement.

An AMRF automatically becomes an ARF when the owner either meets the guaranteed pension income requirement or attains the age of 75 years, and the amount of funds in the AMRF at that time can be drawn down at the owner’s discretion under ARF rules.

The €5 per week increase in all weekly social welfare payments announced in Budget 2019, which applies from next March, will be taken into account in determining if an AMRF owner meets the minimum guaranteed pension income necessary for the conversion of the AMRF into an ARF. From 1 March 2019, the State Pension (Contributory) payable to an individual aged under 80 years, with 48 or more average yearly PRSI contributions, will be €248.30 per week. On an annualised basis this will exceed the €12,700 income threshold mentioned above for an AMRF or annuity. Individuals whose only pension income is the “full” State Pension (Contributory) will therefore not be subject to the AMRF requirement and may invest their full pension savings in an ARF.

Previously, the Christmas bonus paid by the Department of Employment Affairs and Social Protection was not counted towards the €12,700 requirement because neither the payment nor the amount of the payment was guaranteed. From March 2018, the amount of the State Pension (Contributory), where payable to individuals with 48 or more yearly average PRSI contributions, was only marginally less than €12,700 (for individuals aged under 80 years, it was €243.30 per week, an annualised total of €12,651.60). Given these circumstances, Revenue announced in May 2018 that it would allow individuals who received a Christmas bonus under S.I. No. 523/2017 – Social Welfare (Temporary Provisions) Regulations 2017 to take that into account for the AMRF limit (and for the related limit for Personal Retirement Savings Accounts). AMRF owners whose only pension is a State Pension (Contributory) may already have had their AMRF converted into an ARF when the Christmas bonus for 2017 was taken into account in computing their pension income.

Further information on the guaranteed pension income requirement is available in Chapter 23.5 of Revenue’s Pensions Manual - www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-23.pdf.

Under the Government’s Roadmap for Pensions Reform 2018-2023, a number of specific actions have been allocated to the Interdepartmental Pensions Reform and Taxation Group (IDPRTG). The IDPRTG is chaired by the Department of Finance and includes representatives from my Department as well as from the Department of Public Expenditure & Reform, the Department of Employment Affairs & Social Protection, Revenue and the Pensions Authority.

Action 3.14 tasks the IDPRTG with undertaking "a broad review of the utilisation of the ARF option" and "this will include a review of ARF criteria set out in tax legislation including specified minimum income requirements". To inform its work, the IDPRTG recently conducted a public consultation on Supplementary Pensions Reform, inviting interested parties to input to the process. The consultation paper set out three main discussion areas: Section A – Simplification & Reform; Section B – Costs; and Section C – Approved Retirement Funds (ARFs). The Public Consultation concluded on Friday 19 October.

The consultation responses are currently being collated and will be reviewed by the IDPRTG. The IDPRTG will then report on the Actions allocated to it in due course.

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