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

On the issue of what tax applies to contributions to pension funds, it is the marginal rate of tax. If someone who is a 20% taxpayer is putting in money, that is their relief. If someone is a 41% taxpayer, that is their relief.

On the withdrawal of the AVCs, the same rules apply. If one is a standard rate taxpayer, one pays tax at the standard rate. If one is a 41% taxpayer, one pays tax on the AVC at the top rate.

Since 2011, there is no PRSI relief on contributions going in. There is no change in that respect, or in USC. One will get tax relief on the contributions at the marginal rate, and on withdrawal, if one exercises the AVC scheme we are debating, one will pay the marginal rate on it.

I do not agree with the Deputy's second point. I agree with his first point that it might be perceived that there is an unfairness vis-à-vispeople who hold the AVCs to maturity. They would have to pay the USC plus the marginal rate of tax on their drawdowns at that stage. People must look cautiously at this. Taking out their AVCs may not be the right thing for people to do before their retirement. Many people will come to that decision. I think Deputy McGrath said that we had put €100 million in for the yield from this in 2013. That would indicate that the Department of Finance has a very modest view of the number of people who will avail of this because the yield is very modest. Somebody withdrawing the AVCs earlier may not get the same value as they would at retirement because an AVC is an investment and if the investment is allowed to run, it may be of greater benefit. These are judgment calls that people must think about before they withdraw the AVCs. It is not a simple matter of comparing tax at 41% and then a tax rate at 41% plus whatever the USC rate on the individual will be. I do not see it as building in an incentive. I see it as being neutral in respect of people making a decision and if they decide to wait until the AVCs mature when they retire, they are in the tax regime that applies to income.