Dáil Éireann Debate, Tuesday - 10 October 2023
95. Deputy Francis Noel Duffy asked the Minister for Finance the reason his Department categorises approved retirement funds not as a pension, but as savings and investments; if consideration has been given to categorising approved retirement funds as a pension; and if he will make a statement on the matter. [43477/23]
View answerI am advised by Revenue that approved retirement funds (ARFs) are not pensions but post-retirement investment vehicles through which individuals can invest the proceeds of their pension fund at retirement and draw cash as required.
By way of background, prior to the introduction of the ARF in Finance Act 1999, any person taking a pension from a Defined Contribution (DC) scheme or a Retirement Annuity Contract had to purchase an annuity with their remaining pension pot after drawing down the permissible tax-free retirement lump sum. The ARF arrangement expanded the options at retirement so that, as an alternative to the annuity option, the balance of a pension fund could be taken in cash (subject to tax, as appropriate) or be invested in an ARF, subject to certain conditions.
ARFs were initially confined to holders of personal pensions and proprietary director members of occupational pension schemes. Finance Act 2000 extended the ARF option to the part of an employee’s occupational pension fund built up from Additional Voluntary Contributions (AVCs). It was further extended in Finance Act 2011 to cover an employee’s entire pension fund where the fund is a DC occupational pension scheme.
In contrast to a pension to which an individual makes direct contributions to the pension fund, an individual does not make contributions directly into an ARF. Instead, an ARF provides a vehicle in which an individual may invest the accumulated proceeds of their pension funds on retirement. The beneficial ownership of the assets in an ARF remains with the individual but must be managed by a qualified fund manager (QFM), as defined in section 784A Taxes Consolidation Act 1997 (TCA).
Unlike a pension, an ARF allows the individual greater control over the investment of their assets, subject to certain investment restrictions as set out in Chapter 19 of Revenue’s Pensions Manual.
The categorisation of an ARF as a post-retirement investment vehicle and not a pension has also been upheld by two recent Tax Appeal Commission (TAC) determinations, 36TACD2019 and 28TACD2023.
Finally, it should be noted the Inter Departmental Pension Reform and Tax Group in its 2020 Report recommended that the ‘ARF option’ should be discontinued on a prospective basis to be replaced by a combination of inscheme drawdown and a re-designed Personal Retirement Savings Account which operates as a whole-of-life product. This would both simplify the pension landscape and enhance consumer outcomes by improving regulation and reducing costs. Work on implementing this complex piece of work is ongoing.
