Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)

This evening I wish to be constructive and put forward an argument for the need to allow a certain cohort of people to unlock part of their pension funds. This will allow a flexible system for many people under financial duress. I have consulted with the Irish Brokers Association and IBEC on this matter.

Widespread early draw-down of defined benefit and defined contribution schemes must be avoided. There are, however, significant funds in additional voluntary contributions and other personal pension schemes that are suitable for early draw-down. IBEC estimates there is currently €4 billion in AVC schemes, in addition to the standard pension contributions already made by employees in defined benefit and defined contribution schemes. There is also approximately €15 billion in personal pension schemes that are widely used by the self-employed and small business owners.

The benefits to the Irish economy have been researched by IBEC, which argued that if one in four people with AVCs and personal pension schemes were to draw down a quarter of their funds, the stimulus would amount to €1.3 billion. If the draw-down was taxed at 20%, there would be an immediate and direct injection to the Exchequer of €260 million because of the liquidity in the market and people spending. IBEC further estimates the additional activity in the economy would create and sustain more than 3,100 jobs in a three year period.

Government policy allowing temporary or early access to private pension savings has been introduced in a number of countries, including Australia, Iceland, Spain and Denmark. With the assistance of statistics from the Irish Brokers Association, I will refute the five main concerns proffered against my proposal. The first is that the banks would see this as a reason to pressurise people to cash in their pension funds. Banks are already doing this and I propose that early access to pension draw-down should only be permitted after sign-off by an appropriate agency such as MABS, a personal insolvency trustee or an independent financial adviser. The second argument is that it will cost the State money. By limiting it to funded pensions schemes and to amounts members are already permitted to take tax free, there is no extra cost to the State. The pension levy can be deducted prior to release. The third argument is that early access will decipitate existing savings. The maximum amount available tax free is 25% of the fund and, by definition, the earlier this is accessed, the smaller the amount. International figures suggest take-up would be less than 20%. The fear of decipitation of funds was also an initial concern for ARF draw-downs and proved groundless. The fourth argument is that the British Government looked at early draw-down of certain pensions and decided not to go ahead due to minimal support, principally from the pensions industry. In Ireland this proposal has the backing of the Irish Brokers Association, which represents 70% of all pension contributions in Ireland, and the Irish Association of Pension Funds and IBEC also support this measure. The final argument is that it will lead to a reduction of individual pension funds in the long term. This reduction is already allowed by the State at retirement, so earlier access has no further negative impact on the fund.

I ask the Minister for Finance and Social Protection to look at this proposal in the Finance Bill or the upcoming social welfare Bill.

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