Dáil Éireann Debate, Tuesday - 17 November 2020
273. Deputy David Stanton asked the Minister for Finance his plans to lift restrictions on accessing approved minimum retirement funds for persons with limited retirement income; and if he will make a statement on the matter. [36766/20]
View answerIn relation to Approved Minimum Retirement Funds (AMRFs), prior to Finance Act 1999, individuals with Defined Contribution (DC) pension savings had no option but to purchase a pension income or annuity with their savings after taking the allowable tax-free retirement lump sum. Finance Act 1999 introduced flexibility and choice for certain individuals in relation to their pension savings and those flexible options at retirement have since been extended to all benefits from DC retirement benefit schemes and other DC pension savings. These arrangements are therefore of long-standing.
Choices which are now available to individuals in relation to their pension savings (after taking the tax-free retirement lump sum) include the option to purchase an annuity, if they so wish, to receive the balance of the pension funds in cash (subject to marginal rate tax, as appropriate), to invest in an approved retirement fund (ARF) or an approved minimum retirement fund (AMRF), subject to certain conditions.
Under the regime, the options to invest in an ARF or receive the balance of the 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 minimum level of pension income (“specified income”) actually in payment for life at the time the option to effect the ARF or cash option is exercised. The purpose of the specified income requirement is to ensure, before an individual has unrestricted access to their remaining retirement funds via an ARF or by way of the cash option, that they have the security of an adequate guaranteed pension income throughout the period of their retirement. The specified income requirement is €12,700 per annum and this income requirement can be satisfied, in part at least, by the amount of the State pension in payment to an individual in his or her own right (for example, excluding any payment being received on behalf of a dependent).
Where the minimum specified income test is not met, and an individual does not wish to purchase an annuity, then an AMRF must be chosen into which a “set aside” amount must be invested. The maximum amount of the “set aside” is €63,500 or the remaining pension fund amount, if lower, after taking the permissible tax-free retirement lump sum. The funds in an AMRF can be used at any point, in full or in part, to purchase an annuity, including an annuity sufficient to meet the minimum specified income requirement.
The purpose of the AMRF is to ensure that an individual without the minimum guaranteed pension income for life has a pension ‘safety-net’ to provide for the latter years of his/her retirement. Up to Finance Act 2014, the capital invested in an AMRF could not be accessed until the AMRF owner reached age 75 (or meets the guaranteed pension income requirement before then) at which point the AMRF becomes an ARF with unrestricted access to the funds, subject to taxation. While the capital sum in an AMRF could not be accessed, as set out, any income, profits or gains accrued from the investment of the capital could, until recently, be withdrawn by the AMRF owner, subject to tax at the marginal rate.
My predecessor changed the arrangements for AMRFs so as to allow AMRF-owners voluntary, tax-liable access to a maximum of 4% of their AMRF assets each year until it becomes an ARF. This change provides AMRF owners with access to a definitive and certain level of income from their AMRF rather than the uncertain level of income which access to the accrued income, profits and gains in the AMRF provided.
Under the previous access arrangements for AMRFs, the extent of any income, profit or gains would depend on the performance of the investment options taken and could, therefore, be highly volatile with the possibility of little or no gains accruing in certain years. In addition, the scale of the capital allowed for in an AMRF, at a maximum of €63,500, would not always permit for investment returns of any significant scale to be made using a prudent investment policy.
The change allowing access to a specified percentage of the capital in an AMRF is primarily aimed at those individuals whose AMRF constitutes a significant part of their retirement funds and who, while not wishing to purchase a pension annuity with those funds, may require access to a portion of these funds to provide a more certain form of supplementary pension income prior to reaching age 75. This facility also ensures that an individual will have some remaining funds in the AMRF at age 75 to provide for their remaining years, assuming the individual has not purchased a pension annuity in the meantime.
An AMRF will automatically become an ARF when an individual either becomes entitled to the required level of specified income at any time after exercising the ARF option, or when they reach the age of 75 years.
I have no plans to change these arrangements at present.
However, the Report of the Interdepartmental Pensions Reform & Taxation Group was recently published on my Department’s website which contains a discussion about AMRFs https://www.gov.ie/en/publication/98d7f-report-of-the-interdepartmental-pensions-reform-and-taxation-group/ .
I am aware of the severe difficulties that individuals are facing during this unprecedented crisis and in response to that a very comprehensive package of measures has been put in place by the Government to assist those who have suffered a loss of income. This includes the Employment Wage Subsidy Scheme (TWSS), the Pandemic Unemployment Payment (PUP), the Re-Start Grants, Credit Guarantee Scheme, Covid Restrictions Support Scheme (CRSS) and the VAT reduction from 13.5% to 9%.
