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Pension Provisions

Dáil Éireann Debate, Wednesday - 17 April 2019

Wednesday, 17 April 2019

Questions (47)

Aindrias Moynihan

Question:

47. Deputy Aindrias Moynihan asked the Minister for Finance his plans to deal with the issue of private pension schemes which are not paying cost of living increases in circumstances in which the recipient is entitled to same; if his attention has been drawn to the fact that many policies may be affected like this in the future; and if he will make a statement on the matter. [17823/19]

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Oral answers (6 contributions)

There is an expectation among pensioners of a bigger pension but because of Revenue rules, a restriction has been put on the 5% escalators in certain policies. How will the Minister ensure people get the pension increase they were expecting?

I am advised by Revenue that it is aware that a number of pension providers are not paying out the full yearly increases on a number of policies known as "5% escalators".  These are pension policies where the provider has agreed that the amount of the pension paid out will be increased by a certain percentage on an annual basis. The legislation governing the tax treatment of pensions is contained in Part 30 of, and Schedules 23 to 23C to, the Taxes Consolidation Act 1997. In addition, the Revenue pensions manual gives general guidance on, among other things, how this legislation is to be applied.

Revenue rules in relation to policies such as these escalators allow that guaranteed increases of a pension in payment may be made if within the following limits: a fixed increase of not more than 3% per annum compound; or an increase linked to the consumer price index or another similar agreed index. The rules in question have been in existence for many years and their purpose is to maintain the real value of pension payments. Consequently, these rules allow for the real value of pensions in payment to be maintained over the course of a pensioner’s lifetime.

Having made inquiries, Revenue has identified that there are around 1,000 of these 5% escalator policies in total in Ireland and that payments have been restricted in around 160 of these policies.  This matter will be raised by Revenue in the course of its meeting with the insurance industry representative body, Insurance Ireland, which is arranged for later this month. Revenue has advised me that it is considering a number of options to address the issue, including changes that may be needed to their pensions manual to ensure policyholders receive the full benefits to which they are entitled.  I have been assured that any changes that may be required will cover all policyholders that are or may be affected.

Over many years, the State has encouraged people to make provision for their own pension. People need to have confidence that the system will deliver for them in respect of their pensions but mixed messages have been sent here and restrictions have been put in. I understand from the Minister that there is a move to take action, and that is important, but will that action deal only with existing pensions? Will it pay back what has been restricted? How confident is the Minister on his estimation of "around 1,000" such cases? We know that one in seven is restricted. Are there a total of 1,000 or might there be many others which have not been discovered yet? We also need to know how quickly people will get the increased pension which they were expecting and for which they had paid.

I am very confident about the figure as it was given to me by the Revenue Commissioners on foot of the Deputy's question. It affects around 160 policies overall. I cannot predetermine what the outcome will be of the engagement which the Revenue Commissioners will have with Insurance Ireland. Any changes that might be made are a matter for the Revenue Commissioners and this might lead to a change in the Revenue pensions manual. I am aware of the matter, as are the Revenue Commissioners, which is why they are meeting Insurance Ireland later this month. I will update the Deputy as to the outcome of that meeting and whether any relevant next steps emerge.

It is good that those moves are being taken. Is there a timeline for when the changes will be made to the manual? Will the Minister be able to direct that the money will be paid in respect of pensions that have already been restricted and that it will not be just new pensions? People have paid into their pensions but they have been restricted and they should be able to get their money back.

I never said any changes would be made because that is a matter for the Revenue Commissioners and it depends on their interpretation of law. If they approach me to say they believe changes are needed in law, or that they require my assistance with something, I will consider it very carefully. The question of whether a pension will be paid retrospectively is a matter for the pension companies themselves and I do not have a role in directing them to do or not to do something. It is first and foremost a matter for the Revenue Commissioners and a meeting will take place on this matter with representative bodies in the next couple of weeks.

Question No. 48 replied to with Written Answers.
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