Dáil Éireann Debate, Tuesday - 25 September 2012
95. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which persons investing in an active managed retirement fund can avail of alternative options in the event of changed circumstances; and if he will make a statement on the matter. [40131/12]
Amharc ar fhreagraI understand that the Deputy is referring to a query from a constituent regarding an approved minimum retirement fund (AMRF). AMRFs form part of the options introduced by Finance Act 1999 to provide control, flexibility and choice to certain individuals in relation to the drawing down of benefits from their pension plans. Prior to that Act, any person taking a pension under a defined contribution (DC) scheme or a Retirement Annuity Contract had no choice but to purchase an annuity with their remaining pension pot after drawing down the permissible tax-free lump sum.
The choices which then became available included the existing option to purchase an annuity with those remaining funds, and new options to receive the balance of the pension funds in cash (subject to tax, as appropriate), to invest in an approved retirement fund (ARF) or an Approved Minimum Retirement Fund (AMRF), subject to certain conditions. Access to these flexible options was extended to all main benefits from retirement benefit schemes (other than Defined Benefit arrangements) in Finance Act 2011.
Under the regime the options to
- invest in an ARF, or
- receive the balance of the pension fund in cash (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 a guaranteed level of pension income (“specified income”) actually in payment for life at the time the option to effect the ARF or cash option is exercised. The purpose of the specified income requirement is to ensure, before an individual has unfettered access to their remaining retirement funds via an ARF or by way of the cash option (subject to tax), that they have the security of an adequate guaranteed pension income throughout the period of their retirement.
Finance Act 2011 increased the specified income limit from the previous fixed amount of €12,700 per annum introduced in 1999, and unchanged since that time, to a variable amount equal to 1.5 times the maximum annual rate of the State Pension (Contributory) bringing the specified income limit to €18,000 per annum at present. However, as a transitional measure, Finance Act 2011 allows the previous lower guaranteed income requirement of €12,700 per annum to continue to apply for a period of 3 years from the date that Act was signed into law (6 February 2011), including for individuals who had retired before that date and who already had an AMRF.
The State Pension (Contributory) would count towards meeting the specified income limit. You should note, however, that only guaranteed pension income paid to the individual in his or her own right can be taken into account for this purpose. Pensions paid directly to the spouse of an individual or pensions/allowances received on behalf of a spouse or dependant may not be included.
Where the minimum specified income test is not met, and an individual does not wish to purchase an annuity, then an AMRF must be chosen into which a “set aside” amount must be invested. The purpose of an AMRF is to ensure a capital or income “safety net” throughout the latter period of their retirement for individuals with pension income below the specified income limit. Prior to Finance Act 2011, the “set aside” amount was fixed at the first €63,500 of the pension fund or the remainder of the fund after taking the tax-free lump sum, if less than €63,500. Finance Act 2011 increased the “set aside” amount to 10 times the maximum annual rate of State Pension (Contributory) – €119,800 at present – or the remainder of the pension fund, after taking the tax-free lump sum, if less. The capital in an AMRF is not available to an individual until he or she reaches 75 years though any income generated by the fund can be drawn down subject to tax. The capital in an AMRF can be used by the owner at any time to purchase an annuity and the AMRF can be changed to an ARF with access to the capital sum (subject to taxation) before the age of 75 where the specified income test is met before that age.
These are the various requirements around the operation of the options at retirement for those with Retirement Annuity Contracts, Personal Retirement Savings Accounts and other defined contribution pension arrangements and the reasons for those requirements. While I am not in possession of all of the relevant personal details of your constituent’s case which would impact on the scope of the options available to your constituent, and subject to that very important caveat, the following options may be available with regard to the AMRF, other than to leave the capital sum until age 75:
- The use of the AMRF funds to purchase a pension annuity.
- If your constituent is in receipt of the State Pension (Contributory), the amount of that pension in payment to him/her in his/her own right (excluding any amount in respect of a dependent) would count towards meeting the annual specified income test which in this case could be €12,700 at this point in time. The funds in the AMRF could be used to purchase a pension annuity equivalent to the difference between the relevant State Pension amount and €12,700. Any remaining funds in the AMRF would then be available as an ARF and could be withdrawn as a lump sum amount subject to income tax at your constituent’s marginal rate.
