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Pension Provisions

Dáil Éireann Debate, Wednesday - 18 July 2012

Wednesday, 18 July 2012

Ceisteanna (90)

Sean Fleming

Ceist:

89 Deputy Sean Fleming asked the Minister for Finance if he will consider increasing the specified income limit required to effect an approved retirement fund before 75 years of age in connection with additional voluntary contributions; and if he will make a statement on the matter. [35915/12]

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Freagraí scríofa

Under the regime of flexible options on retirement first introduced in 1999, the options to invest in an ARF or to receive the balance of a pension fund in cash (after payment of the "tax-free" lump sum and subject to tax, as appropriate) 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 either a guaranteed level of pension income ("specified income") actually in payment for life at the time the option is exercised or, alternatively, (if the individual does not wish to purchase an annuity) that he or she place a maximum set-aside amount or the remainder of the pension fund, after taking the "tax-free" lump sum, if less, into an Approved Minimum Retirement Fund (AMRF). Finance Act 2011 increased the guaranteed level of pension income required from the previous fixed amount of €12,700 introduced in 1999, to a variable amount equal to 1.5 times the maximum annual rate of the State Pension (Contributory) at the time the option is exercised, bringing the "specified income" limit to €18,000 per annum at present. Equally, the maximum set aside amount for investment into an AMRF was changed from a fixed level of €63,500 to a variable amount equal to 10 times the maximum annual rate of State Pension (Contributory) —€119,800 at present. These changes were made in the context of the extension of the flexible (ARF) options on retirement to all main scheme benefits from Defined Contribution pension arrangements. These and related changes were signalled in the National Pensions Framework document published in March 2010.

The purpose of the "specified income" limit is to ensure, before an individual has unfettered access to their remaining retirement funds via an ARF, or the cash option mentioned above, that they have the security of an adequate guaranteed income in their own right throughout their retirement. A further change introduced in Budget and Finance Act 2011 is that the specified income test can be met at any time after retirement and before age 75 and not just at the point of retirement as was the case previously.

To qualify as "specified income", the pension or pensions' income must actually be in payment — pensions anticipated at some time in the future cannot be brought into the reckoning until they commence to be paid. As the specified income requirement is essentially a personalised test, only guaranteed pensions income paid to the individual in his or her own right can be taken into account. Pensions paid directly to the spouse of an individual or pensions/allowances received on behalf of a spouse or dependant may not be included.

I have no plans to adjust the "specified income" limit at this time. However, I have received a number of representations about the scale and timing of the increase in the limit introduced in Finance Act 2011 and I will examine these matters again without prejudice in the context of next year's Finance Bill.

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