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

The Deputy is correct that there will be a gain for Revenue, but it was not a consideration when this was being decided. It is not built into the budget figures. The changes are being made in response to a strong case that the 2011 Finance Act increased the guaranteed pension income requirement and that the maximum AMRF set-aside amount did not provide for adequate transitional arrangements for individuals planning to avail of the AR-PREF option and who were close to retirement. The Finance Bill 2013 provisions provide for such transitional arrangements in the next few years. They will ensure equitable treatment in so far as it is possible to do so for individuals affected by the 2011 changes.

The amendments made in the Bill will make it easier for individuals with modest defined contribution pension savings to have access to an ARF and control over their income in retirement. It must be borne in mind that distributions from ARFs are liable to tax at the ARF owner's marginal rate, in the same way as income derived from a pension annuity. Individuals with ARFs worth less than €2 million must draw down at least 5% of the value each year or it will be assumed that they have done so. They will be subject to tax on that 5% or the difference between that percentage and what they actually draw down.

A higher notional distribution rate of 6% applies to ARFs valued at €2 million and over. The notional distribution arrangements do not apply to the AMRFs. The ARF option, as it is known, of which the AMRF is part, is not an arrangement to avoid the taxes outlined where individuals aged under 75 years do not need the guaranteed pension income limit necessary to have an ARF now reduced to its previous level of €12,700 per annum. They have a choice either to buy a pension annuity with their remaining pension pot or place a maximum of €63,500 or the balance of the pension pot, if lower, into an AMRF. The capital sum in the AMRF is not accessible until an individual reaches the age of 75 years, unless he or she satisfies the guaranteed pension income requirement or decide to purchase a pension annuity in the meantime. When the AMRF owner reaches the age of 75 years, the AMRF automatically becomes an ARF, distributions from which are subject to tax or notional distributions are assumed and taxed where actual distributions are not made.

There is a lot of technical information. It is an area about which one would not be questioned too often in one's advice clinic and I am relying on notes. I have no great personal familiarity with it. The Deputy can take it, however, that the motivation was not to collect revenue. That is a consequence of this provision and it will be a small yield. Persons of an age where they are looking at retirement in three or four years time have suddenly found that what they had planned is now not possible. We are going back to the original limits in order that what they had planned is possible. Effectively, we are giving everyone else three year notice that the new caps will be applied in 2016 and that we will legislate on that basis. That is the best I can do to help the Deputy's understanding of this issue.