Tuesday, 11 March 2014

Ceisteanna (220)

Robert Troy


220. Deputy Robert Troy asked the Minister for Social Protection her views on correspondence (details supplied) regarding the construction workers' pension fund. [11749/14]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Social)

Pensions are a long-term investment aimed at ensuring that people have an adequate income in retirement and Government policy supports this aspiration through generous tax reliefs. In general, people are only permitted to access their pension savings at the retirement age defined in their pension schemes. Schemes may have early retirement provisions from age 50 and when retirement is caused by ill-health, benefits may be paid regardless of age. In the case of Personal Retirement Savings Accounts (PRSAs) and Retirement Annuity Contracts (RACs), benefits may be taken at any time after age 60 and from any age in the case of ill-health.

The Minister for Finance announced, as part of Budget 2013, that access to 30% of Additional Voluntary Contributions (AVCs) on pensions will be allowed subject to a marginal tax rate of 41%. This option to withdraw is available for 3 years from the 27 March 2013. The introduction of this measure is designed to allow people, who have provided for a good retirement through a core pension but who have an immediate financial need, to access a portion of their pension pot before they retire. There are no plans to extend this limited access option further.

There are a number of reasons why early withdrawals of pension savings are generally not permitted, the principal one being that funds, and the associated tax relief on contributions, are designed to support people in later life to ensure they have an adequate income. This requires that pensions must be long term vehicles based on the principle that savings will be “locked away” until retirement. The issue of early access has been considered in detail by an inter-departmental ad-hoc group, chaired by the Department of Social Protection. The group concluded that the principle of pension savings being “locked away” until pension age should be maintained. The Interdepartmental Group on Mortgage Arrears also examined the issue of early access to pensions and did not recommend such an approach.

If people are allowed to access their pension savings early, the resulting reduction in pension savings could have significant negative consequences in the longer term. Younger people in pension schemes are unlikely to have significant pension savings and where their pension scheme has incurred losses, as many have over the past number of years, early withdrawal of funds would mean very poor value for money. There is no guarantee the funds could be repaid or that people could make up these losses. Where people are close to retirement, an early withdrawal of funds could significantly diminish the pension they receive as they may not have time before retirement age to fill the gap left by such a withdrawal.

At present, only 51% of people in employment aged 20 to 69 have pension coverage. This relatively low rate of pension coverage is a major concern. The Programme for Government includes a commitment to reforming the pension system to progressively achieve universal coverage and allowing people access to their pension savings before pension age would run totally counter to the policy of encouraging more people to save more for their retirement.