Dáil Éireann díospóireacht -
Thursday, 7 Dec 2000

Vol. 527 No. 5

Written Answers. - Pension Provisions.

Noel Ahern

Ceist:

144 Mr. N. Ahern asked the Minister for Finance if he will clarify the regulations with regard to lump sum refunds of payments from pension funds; if he will amend current regulations and allow pension funds with a gross amount totalling £12,500 or less to be drawn down as a lump sum when the member has reached 50 as currently it appears part of the fund must be retained and paid weekly even where the amount payable is only £7 per week on a non-inflation linked basis; and if he will make a statement on the matter. [29186/00]

Minister for Finance (Mr. McCreevy)

It is assumed that the Deputy is referring to occupational pension schemes. Revenue rules in relation to approved occupational pension schemes provide that lump sums benefits paid to employees at normal retirement age may not exceed 1.5 times the final remuneration of the employee where he or she served with the employer for 20 years up to the date of retirement. A sliding scale of lump sum benefits operates for service of less than 20 years and a reduced lump sum may be paid in cases of early retirement, but not earlier than age 50. In the case of early retirement at age 50, the balance of the fund after taking the tax free lump sum is payable in the form of a taxable annuity or pension and be subject to PAYE and appropriate PRSI deductions.

I feel that there may be some difficulties with the Deputy's proposal that benefits of up to £12,500 could be taken in lump sum form at age 50. First, it could be argued that it is an arbitrary figure in that it may not be based on any analysis in relation to occupational pension scheme benefits. It could cause particular difficulties where funds are valued at amounts marginally in excess of £12,500. Second, the proposal would need to be considered in the light of the fact that many individuals would, on attainment of age 50, still be involved in the workforce and be accruing pension benefits with new employers. It would be imprudent to encourage, by favourable tax treatment, the taking of benefits in lump sum form at age 50 at a time when an individual may be earning in full-time employment, to the detriment of increased pension benefits being available at eventual retirement date when they would be more likely to be needed to supplement the benefits from the final scheme of the employee.

In conclusion, before such a proposed change to pensions legislation could be made it would seem prudent to have the matter fully considered by my officials. I have referred the Deputy's proposal for consideration to a special pensions working group comprising representatives from the relevant Departments and the Pensions Board. The Deputy may be aware that I made significant changes to pension arrangements in the Finance Acts, 1999 and 2000, in relation to the provision of approved retirement funds and preparations are under way to introduce legislation governing personal retirement savings accounts, PRSAs, in accordance with a commitment given on behalf of the Government.