Dáil Éireann Debate, Tuesday - 5 February 2013
263. Deputy Regina Doherty asked the Minister for Finance if consideration will be given to extending Section 787Q of the Taxes Consolidation Act 1997 to private sector pension schemes; and if he will make a statement on the matter. [5428/13]
Amharc ar fhreagraChapter 2C of Part 30 of the Taxes Consolidation Act 1997 (TCA), incorporating sections 787O to 787U, and the associated Schedule 23B provide for a maximum allowable pension fund on retirement for tax purposes. The Chapter imposes a limit or ceiling on the total capital value of pension benefits that an individual can draw upon in their lifetime from tax-relieved pension products where those benefits come into payment for the first time on or after 7 December 2005. This limit is known as the Standard Fund Threshold (SFT) and is set at €2.3 million as on and from 7 December 2010. In certain circumstances, a higher threshold called a Personal Fund Threshold (PFT) may apply. Section 787Q deals with the concept of the “chargeable excess” and, among other things, with the arrangements for the recovery of tax paid upfront on a chargeable excess by a pension administrator in the public service. The SFT was introduced as a deterrent to prevent over-funding of supplementary pension provision from tax-relieved sources and there are penal tax consequences where benefits are taken from pension funds which exceed the SFT or a PFT, where applicable. There is an immediate ring-fenced tax charge of 41% on the “chargeable excess” over the value of the SFT or PFT. Furthermore, the remaining amount is taxed again at the individual’s marginal rate when taken as retirement benefits.
The SFT regime operates as it is intended to do in the private sector to deter over-funding of pensions, as individuals have the flexibility (which they generally exercise) to cease contributing to or accruing benefits under pension arrangements in order to avoid exceeding the SFT or the PFT, if applicable.
The situation is different for individuals in public service pension schemes who cannot opt-out of the schemes and have no control over their accrual of public service pension entitlements (other than to leave their jobs). Simply by continuing in their posts, a significant chargeable excess and tax liability could arise for certain individuals at the point at which they retire from the public service pension scheme. This situation is unlikely to arise in the private sector. It should also be borne in mind that in public service schemes there is generally no actual pension fund available out of which the tax liability can be met. For these various reasons, section 787Q sets out arrangements for the reimbursement of the administrator for tax paid on a chargeable excess in respect of a retiree in a public service context. This reimbursement can be effected by a reduction in the net retirement lump sum payable to the individual from the public service scheme, by recoupment directly from the individual, by recovery from the gross public service pension over a period or by a combination of these approaches.
I have not been made aware of similar difficulties to those that I have described above in a public service context arising in the private sector. If such difficulties exist and are outlined to me, I will examine the matter further.
