Dáil Éireann Debate, Wednesday - 18 May 2016
44. Deputy Michael McGrath asked the Minister for Finance to clarify the circumstances a person can access funds in an approved minimum retirement fund prior to reaching 75 years of age; if he will clarify the application of the Revenue Commissioner's triviality clause in this regard; and if he will make a statement on the matter. [10803/16]
Amharc ar fhreagraBy way of background, an individual in a defined contribution pension savings arrangement (whether an occupational pension scheme or a personal pension) has the option of putting the funds accumulated under this arrangement into an Approved Retirement Fund (ARF) on retirement. Where such an individual is under the age of 75 at the time of exercising this option and does not meet the condition of having a minimum guaranteed pension income for life of €12,700 per annum, he or she is required to set aside an amount of €63,500 (or the remainder of the pension fund if less than €63,500 after taking a retirement lump sum). These funds are set aside by investing in an Approved Minimum Retirement Fund (AMRF) or by the purchase of an annuity.
An AMRF owner has the option of using some, or all, of the funds in AMRF to purchase an annuity at any time prior to attaining the age of 75.
The purpose of the AMRF is to ensure that an individual, without the minimum guaranteed pension income for life, has a nest-egg to provide for the latter years of his or her retirement.
With effect from 2015, an AMRF owner may draw down up to 4% of the value of the fund assets on one occasion annually until he or she either meets the guaranteed pension income requirement or attains the age of 75, at which point, the AMRF automatically becomes an ARF and any remaining funds can be drawn down at the beneficial owner s discretion.
In general, drawdowns from AMRFs (and ARFs) are subject to income tax, PRSI (up to age 66) and USC.
The 4% annual draw down arrangement was introduced by Finance Act 2014 and replaced the facility that existed previously, whereby an AMRF owner could draw down the accrued income and gains of the AMRF (subject to tax) as and when they wished. This change was prompted by a concern to give all AMRF owners access to a more certain level of annual income from their AMRF, rather than the uncertainty that dependence on investment performance had given rise to heretofore. This is particularly important for those individuals whose AMRF constitutes a significant part of their retirement funds.
I am advised by the Revenue Commissioners that under the trivial pension rules, full commutation of a pension under an occupational pension scheme may take place if the aggregate benefits payable to an employee under the scheme (and any other scheme linked to the same employment) do not exceed the value of a pension of €330 per annum. This treatment is also available to holders of small retirement annuity contracts (RACs) and Personal Retirement Savings Accounts (PRSAs).
I am further advised that, as an alternative to the above, where, after taking the retirement lump sum, the remaining fund available to an individual for the provision of pension benefits is less than €20,000, the Commissioners have no objection to the payment of a once-off pension. The amount of retirement benefits from all sources must be taken into account for the purposes of calculating the €20,000 limit, and this option applies equally to the holders of RACs and PRSAs.
In effect, this means that those with relatively small pension pots at retirement who do not satisfy the guaranteed pension income condition required for ARF access, are not required to invest the pension pot in an AMRF or purchase an annuity with it, but can instead draw it down in full, subject to appropriate tax.
