Martin Mansergh (Tipperary South, Fianna Fail)

I thank Deputy Barrett for raising this issue. Approved retirement funds, ARFs, are funds managed by a qualifying fund manager into which an individual can invest the proceeds of their pension fund when they retire. Income and gains of an ARF are exempt from tax and social insurance within the fund. Any amounts withdrawn from an ARF are referred to as a distribution, which is treated as income from an employment. It is subject to income tax and the fund manager must operate PAYE and PRSI as appropriate.

Approved retirement funds are not pension schemes and are instead treated as assets. The account owner has control over when and how much they can withdraw at any time, unlike, for example, an occupational pension where a person receives a defined amount of money on a weekly or monthly basis. On this basis, withdrawals from approved retirement funds are liable for PRSI at class S.

Pension annuities provide a secure means of converting savings into pension income and avoid the danger that pensioners could exhaust their pension savings in their lifetime. In general, PRSI is not due on any payment received by way of a pension income. Retirement annuity contracts are long-term savings accounts designed to assist individuals to save for their retirement. Employees who are not members of a pension scheme, or individuals who are self-employed, may claim tax relief against earned income. Annuities payable under a retirement annuity contract are, therefore, regarded as excepted emoluments for PRSI purposes.

There has been no recent change to the legislation in this area. Rather, the Department of Social Protection recently clarified to relevant qualifying fund managers that distributions from approved retirement funds fall within the charge to PRSI. As Deputies will be aware, current pensions policy is being developed under the national pensions framework. The aim of the framework is to deliver security, equity, choice and clarity for the individual, the employer and the State. It also aims to increase pension coverage, particularly among low to middle income groups, and to ensure that State support for pensions is equitable and sustainable. The framework identifies the need for incentives to be targeted to strike a balance between encouraging pension coverage and considerations of equity and cost effectiveness. In this context, a review of the interaction between social insurance and pension structures is being undertaken.

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