Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I repeat, for the sake of continuity, that the ARF options were later extended to all holders of additional voluntary contributions. Today, retiring individuals in defined contribution pension arrangements still have the option to purchase an annuity, but as an alternative they can draw down their remaining pension pot, after taking the tax-free retirement lump sum, by way of a taxable lump sum, or invest it in an approved retirement fund, ARF.

I will continue now with the briefing note. Withdrawals from ARFs are liable to income tax at the ARF owner's marginal income tax rate and to universal social charge, USC, in the same way that regular pension income from an annuity is so liable. The options to invest in an ARF or take a taxable lump sum are subject to conditions. These are that the individual must be over 75 years of age or, if under that age, he or she must have a guaranteed level of pension income in payment for life at the point of retirement. The level of this guaranteed pension income was set at the equivalent of €12,700 per annum on the introduction of the ARF option in 1999. If an individual cannot meet the guaranteed pension income requirement and does not wish to purchase a pension annuity, he or she must invest in an approved minimum retirement fund, AMRF. The amount required to be invested in an AMRF was set, on the introduction of the ARF option, at the lower of €63,500 or the remainder of the individual's pension pot after the tax-free lump sum has been taken. In essence, an AMRF is a very restrictive type of ARF in that, once invested, the capital in an AMRF cannot generally be accessed until the individual reaches 75 years of age or meets the guaranteed pension income requirement before then, at which point the AMRF automatically becomes an ARF. Income generated by the AMRF investments can be drawn down, and the capital in an AMRF is available at any time for an individual to purchase a pension annuity should he or she wish to do so. These arrangements are all about giving individuals choices depending on their particular circumstances.

The Finance Act 2011, as well as extending the ARF option to members of defined contribution pension schemes in respect of their main benefits from those schemes, also increased the guaranteed pension income requirement for ARF purposes from €12,700 to the current value of €18,000 currently and the maximum set-aside amount for AMRF purposes from €63,500 to the current value of €119,800. As mentioned, these limits had not been changed since the introduction of the ARF option in 1999.

Because these changes were introduced with immediate effect from the passing of the Finance Act 2011 on 6 February 2011, they had an impact on individuals retiring after that date by requiring them to meet a higher guaranteed pension income threshold for ARF purposes or, where they did not meet the guaranteed pension income test, invest a higher amount in an AMRF. The impact of these changes was felt much more severely by those with modest pension pots. By way of illustration, it is much more onerous for an individual with a pension pot of, say, €200,000, who, after taking a 25% tax-free lump sum of €50,000, must place almost €120,000 in an AMRF to be locked away until he or she reaches the age of 75 in order to be able to place the remaining €30,000 in an ARF, than it is for an individual with a pension pot of, say, €1 million to comply with the same requirements.

As mentioned during the Committee Stage debate, I received many representations, including from the Pensions Ombudsman, about the fact that these changes were introduced without the provision of adequate transitional arrangements. It has been put to me that it is unfair that many individuals who had been planning for retirement based on the original requirements of the legislation were suddenly faced, and indeed continue to be faced, with having to meet much more stringent conditions without any time to prepare for them. That is the reason I have decided to reinstate the old limits of €12,700 and €63,500 in respect of ARF options exercised on or after the date of the passing of the Finance Act 2013. It is intended that the higher guaranteed pension and set-aside limits introduced by the Finance Act 2011 will be put in place again in three years' time, which will give individuals preparing for their retirement after that period time to adjust to these more stringent higher requirements.

In addition, to ensure that individuals who were affected by the higher limits in the period since the passing of the Finance Act 2011 - that is, since 6 February 2011 - are not disadvantaged, I am making two other changes in subsection (6) of section 17. First, I am providing that where such individuals have guaranteed pension income of at least €12,700 on or after the date of the passing of the Finance Bill, any AMRF they have immediately becomes an ARF, and second, even if they do not have a guaranteed pension income of that amount, if they have set aside in an AMRF a capital amount greater than €63,500, the amount above €63,500 immediately becomes an ARF. Similar provisions are made to deal with situations in which an individual retains his or her pension pot in a vested PRSA rather than exercising the ARF option. Deputy Doherty's amendments Nos. 6 to 10, inclusive, would deny these changes and are a natural consequence to his amendment No. 5, which seeks to retain the more stringent ARF access amounts. For all these reasons, I cannot recommend these amendments.

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