Brian Lenihan Jnr (Dublin West, Fianna Fail)

Members will be aware I recently announced that the rules relating to the requirement for members of defined contribution occupational pension schemes to purchase an annuity with their pension funds in retirement are to be relaxed by the Revenue Commissioners, on a temporary basis.

These amendments have, therefore, been overtaken by events. The deferral arrangement will be operated on an administrative basis by the Revenue and I understand it has finalised the detailed arrangements of the initiative with the pensions industry since my announcement. Under the arrangement, members of defined contribution occupational pension schemes who retire in the period from 4 December 2008 to 31 December 2010 have the option of taking their tax-free lump sum and purchasing a retirement annuity immediately on retirement, or they can take the lump sum and defer the annuity purchase, subject to agreement with their scheme trustee, up to and including 31 December 2010, by which date the concession will end.

By way of background, my Department was approached by the Irish Association of Pension Funds and others in the pensions industry to look at this issue. They were seeking some flexibility on the timing of annuity purchase in view of the fact that affected defined contribution scheme members retiring at this time will have suffered considerable losses in the value of their pension funds in the past year. The argument was made that in the event of such individuals having to purchase an annuity immediately on retirement these losses would be locked in.

Coupled with more recent falls in interest rates and the likelihood of more interest rate reductions to come, the purchase of an annuity in current market conditions with depleted funds would prove likely to be more costly. It would not provide the same level of guaranteed income as in the recent past. The point was also made to me that the position is even more acute for those who have not yet reached normal retirement age, but who are obliged to retire early due to redundancy. This situation, unfortunately, has been increasingly evident in recent months. This is because the normal shift to a more conservative investment strategy in the years running up to retirement will not have occurred for those individuals as they would not have been planning to retire at this time in the normal course.

In acceding to the request, I was conscious that any decision to defer the requirement for annuity purchase is not a risk-free option for the individuals concerned. As I said in my press statement when I announced this change, in giving individuals the option to purchase the annuity immediately, or within the two year deferral period, there is no guarantee they will get better value if they postpone, for two years, or a later date, the decision to purchase. Those individuals who are retiring now or approaching retirement must take this into account. In this regard, I am happy to note that as part of this initiative, the Pensions Board will publish appropriate risk guidance in this matter in the near future.

I also wish to emphasise that the deferral of annuity purchase announced recently is the result of consultations carried out with the pensions industry and represents what the industry proposed as a means of addressing the immediate issues facing certain individuals coming up to retirement or facing redundancy. In light of the fact that the Revenue Commissioners are facilitating a relaxation of the annuity purchase rules, which largely do what these amendments seek, I do not propose to accept the amendments.

Deputy Bruton asked some wider questions about pension policy in general. He is seeking flexibility for employees to put pensions into an approved retirement fund, ARF, or a personal retirement savings account, PRSA. This is a wider issue to be dealt with in the context of the Green Paper on pensions.

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