Dáil Éireann Debate, Wednesday - 19 January 2022
364. Deputy Brendan Griffin asked the Minister for Finance if private pension funds are accessible for persons before they retire if they leave employment or change professions; and if he will make a statement on the matter. [2432/22]
View answerThe Deputy is asking whether early drawdown of pension funds is allowed in certain circumstances, such as leaving employment or changing professions. The main purpose of a pension fund is to provide a secure income in retirement for the pension beneficiary. The purpose of providing tax relief for pension contributions is to encourage saving - by employers, employees and the self-employed - towards retirement income. Any drawdown permitted would reduce the pension savings from which individuals could provide for their retirement, with smaller pension schemes losing a larger proportion of their overall savings.
As an exceptional measure, with a view of relieving hardship during the financial crisis, early drawdown from pension funds was permitted. However, it was only available from one type of pension product (additional voluntary contributions (AVCs)) and it was introduced for a limited period of time. Section 782A Taxes Consolidation Act 1997 provided members of occupational pension schemes with a three-year period, from 27 March 2013 to 26 March 2016, during which they could draw down, on a once-off basis, up to 30% of the accumulated value of their AVCs. The amount drawn down was subject to income tax under Schedule E, PRSI and USC, which was collected under the PAYE system.
The maximum amount that could be drawn down under this provision was 30% of the accumulated value of AVCs made by the individual. This meant that draw down was not available to anyone who had not made AVCs. Furthermore, it was not possible to make a drawdown from AVCs paid by an employer; from any AVCs which were part of a scheme member’s “normal” contributions; from any contributions to a Personal Retirement Savings Account (PRSA); or from contributions by the employer or the individual to an occupational pension scheme.
While leaving employment or changing professions before retirement may have implications for the individual and could potentially bring financial hardship, it is not the intended purpose of a pension fund to provide income for an individual during this time.
Ireland operates what is described as an “Exempt – Exempt – Taxed” or “EET” pension regime. Contributions to a pension fund are relieved from tax (first “E”) and growth in these funds are also accumulated on a tax-free basis (second “E”). Payments out of the fund during retirement are then subject to income tax (“T”) and USC and PRSI where applicable. The introduction of a scheme to allow early drawdown of pension funds could undermine the integrity of the “EET” regime. Therefore, I do not have any plans to introduce such a measure.
