Wednesday, 4 June 2014

Ceisteanna (28)

Terence Flanagan


28. Deputy Terence Flanagan asked the Minister for Finance his views on correspondence (details supplied) regarding pensions; and if he will make a statement on the matter. [23696/14]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

It is not compulsory for self-employed individuals with Defined Contribution (DC) pension savings to purchase an annuity with those savings. Flexible options at retirement are available in respect of all benefits from DC retirement benefit schemes and other DC pension savings. Choices which are available to individuals (after taking the tax-free retirement lump sum) include the option to purchase an annuity with the remaining funds, to receive the balance of the pension funds in cash (subject to marginal rate income tax, as appropriate), to invest in an approved retirement fund (ARF) or an Approved Minimum Retirement Fund (AMRF), subject to certain conditions.

Under the regime the options to:

- invest in an ARF, or

- receive the balance of the pension fund in cash)

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, that they have the security of an adequate guaranteed pension income throughout the period of their retirement. The specified income requirement is €12,700.

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 an individual's retirement where their pension income is below the specified income limit. The maximum "set aside" amount is €63,500 of the pension fund or the remainder of the pension fund after taking the tax-free lump sum, if this is less than €63,500. 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 a pension 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.This question may have been prompted by changes proposed to be introduced by the UK authorities to their equivalent regime from next year. In terms of increased flexibility, the primary difference between the proposed UK regime and the regime that operates here is the fact that from April 2015, the UK proposes to dispense with their guaranteed income test. In that regard, I have no plans to change the equivalent rule here or the alternative AMRF set aside rule.