Michael Creed
Ceist:140 Mr. Creed asked the Minister for Finance the incentives available for private pension provision; and if he will make a statement on the matter. [14062/00]
Written Answers. - Pension Provisions.
It has been a long standing objective of Government to encourage people to provide for their retirement by giving them an incentive to participate in a pension scheme. In general employees in pensionable employment can contribute up to a maximum of 15% of their total earnings into a pension scheme and these contributions are eligible for a tax deduction. In addition, the employer's contribution to the scheme is allowable for the employer's tax purposes and is not considered as the income of the employee. The income derived from the investments of the pension scheme are exempt from income tax, including deposit interest retention tax. On retirement, an individual can opt to take a certain amount of his pension as a tax-free lump sum and the balance in the form of an ongoing income. To benefit from these favourable tax benefits the pension scheme must be approved by the Revenue Commissioners.
As regards the self employed and proprietary directors who traditionally availed of retirement annuity contracts, I introduced significant changes to the pension arrangements in last year's Finance Act. In summary, I introduced a greater degree of personal choice and flexibility in relation to drawing down benefits for the self-employed and proprietary directors and significantly increased the tax deductible amounts which the self-employed can set aside each year to fund their retirement benefits. The old rule which forced pensioners to take out an annuity was abolished and, instead, the self-employed and proprietary directors now have the option of choosing between purchasing an annuity, receiving the balance of the fund in cash, which is taxable apart from the initial lump sum, or investing in either an approved retirement fund, ARF, or an approved minimum retirement fund, AMRF. These funds allow the individual control over how the pension fund is invested during his or her retirement and also allows the individual to retain ownership of the fund and to pass on any balance remaining in the fund following his or her death.
During the course of the past year, I received a number of representations highlighting certain issues that arose following the introduction of these new pension arrangements and also requests for an extension of the new arrangements. Consequently, following full consideration of the issues raised, I made a number of additional changes to the pension rules this year in the Finance Act, 2000. Most significantly, I introduced gross roll up for ARFs and AMRFs which means that the growth and income of the fund is free of tax as long as the money remains within the fund. Instead withdrawals from the fund will be taxed at the individual's marginal rate of tax.