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

It is worth reflecting on the policy position before I read my briefing note. Pension provision is very important for both the individuals making the provision and for society as a whole. People are very anxious to make provision for their old age and that is the reason there are so many incentives to encourage people to make provision for their retirement. We can all share that position.

AVCs are additional voluntary contributions. These were introduced so that people who had not, for one reason or another, made full provision for their retirement through the scheme they had or who felt they needed to make additional provision for their retirement, could do so in certain circumstances. Therefore, the introduction of any kind of broad measure which would undermine pension schemes by the withdrawal of AVCs was something I had to be cautious about and needed to reflect on very carefully. The approach is that we will not incentivise a draw down by providing a tax break or encouraging it. We are also making the provision a temporary one as we do not want it to become a permanent feature of pension policy.

Our approach is that because many people have debts with which they want to deal or with which they cannot cope, but have money in an AVC, we will allow them make a different decision about their lives now and remove some of the moneys from their AVC. This does not take away from the fact that some people might be tempted to deal with a temporary problem by impairing the permanent provisions they have been making for their retirement. It is within that area the decisions are being made. I decided it was a good idea to let people access AVCs, but with limitations on that access. First, they can access only up to 30%. Second, we would not incentivise a draw down so that people would make a neutral decision, without tax considerations pulling them in either direction. Obviously, pension contributions would have got tax relief at the point of entry and it is, therefore, reasonable to tax them at the point of exit.

I do not think my speaking note adds much to this, but I will read it for the Deputy. In amendment No. 15 the Deputy proposes the preparation of a report for the House on preretirement access to all forms of pension savings in certain unspecified circumstances. I assume the Deputy's proposal is prompted by the inclusion in section 16 of the Bill of provisions for limited pre-retirement access to additional voluntary contributions.

I made clear in my Budget Statement and in reply to a number of parliamentary questions since then that the AVC access provisions being introduced in this Bill are restricted and temporary. My intention is not to incentivise pre-retirement access to pension savings but rather to enable and facilitate it in a limited way, without damaging core pension provisions. For this reason, AVC draw downs will be liable to tax at the marginal rate and the provisions apply only to a percentage of those contributions, together with any proportionate investment return made by pension scheme members over and above their regular or compulsory pension contributions under scheme rules. In this way, pre-retirement access does not impact on the individual's core pension savings or entitlements, which would have a damaging implication for the individual and for the State down the line. This protection of core benefits could clearly not be guaranteed by less restrictive arrangements for pre-retirement access to pension savings.

As regards the preparation of a report on the matter, I would point out that in 2011, at the request of the Government's Economic Management Council, EMC, an ad hoc group was established under the chairmanship of the Department of Social Protection to consider the idea of allowing people to access their pension savings before pension age in order to assist them in paying down debt. The ad hocgroup presented a detailed report to the EMC in September 2011. 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. The Deputy could request a copy of the report made to the EMC from the Minister for Social Protection. In addition, the OECD has carried out an independent review of long-term pension policy in Ireland on behalf of the Minister for Social Protection. I understand that the report of the independent review is currently being prepared and that it will cover, among other things, the issue of pre-retirement access to pension savings. The report is expected to be finalised very shortly and will then be presented to the Minister for Social Protection who will decide on the appropriate arrangements for publication of the report, following its consideration by the Government.

I believe the developments I have outlined deal adequately with the requirements of the Deputy's amendment No. 15 and for these reasons, I do not propose to accept it. Regarding amendment No. 17, my understanding is that the purpose of this proposal is more specific, the intention being to facilitate access by individuals to their retirement lump sums in advance of their actual retirement. Since retirement lump sums can be taken tax free at retirement up to a lifetime limit of €200,000, the implications of this proposal may be different from other proposals for early access to pension savings which most would agree, whether by way of a restricted measure, as in this Bill, or otherwise, should be taxable in light of the tax relief granted to those savings. It is not clear from the amendment whether the Deputy would envisage any limits on the proportion of a retirement lump sum that could be drawn down early or the conditions that would attach to such a facility, if conceded, including the tax treatment. In any event, a retirement lump sum is, of course, a significant part of the individual's core retirement benefits that is generally only available at normal retirement age. Indeed, for many individuals with limited pension savings, a tax-free lump sum may well be the major pension benefit at retirement. In my view it is preferable not to allow early withdrawals of core pension benefits, of whatever kind, as the inevitable result is to divert the savings initially intended to finance retirement to meet a short-term financial crisis. This clearly poses retirement income adequacy issues and in that regard, the impact of the early withdrawal of pension savings on the ultimate value of the pension pot at retirement should not be underestimated. Allowing access to all or even to a proportion of an individual's retirement lump sum before retirement could undermine core benefits in the long term to the detriment of the individual in his or her retirement years. For this reason and others, I cannot commend amendment No.17 to the committee.

One consideration which weighed heavily on me when I was contemplating opening access to AVCs was that if a person was in debt and the bank was pressing that person to access AVCs to pay off bank or mortgage debt, as long as it was not legal to do so, one could protect one's pension, including one's AVCs. However, were it legal, with access widened and access also given to lump sums, Deputies can see the risk that significant lump sums would be put upon by creditors who would want to access whatever savings a person had. I can see the point the Deputy is making but I am giving him a view of the debate that went on in my head before doing this and that issue was very significant.