Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I am advised by Revenue that it is aware that a number of pension providers are not paying out the full yearly increases on a number of policies known as "5% escalators".  These are pension policies where the provider has agreed that the amount of the pension paid out will be increased by a certain percentage on an annual basis. The legislation governing the tax treatment of pensions is contained in Part 30 of, and Schedules 23 to 23C to, the Taxes Consolidation Act 1997. In addition, the Revenue pensions manual gives general guidance on, among other things, how this legislation is to be applied.

Revenue rules in relation to policies such as these escalators allow that guaranteed increases of a pension in payment may be made if within the following limits: a fixed increase of not more than 3% per annum compound; or an increase linked to the consumer price index or another similar agreed index. The rules in question have been in existence for many years and their purpose is to maintain the real value of pension payments. Consequently, these rules allow for the real value of pensions in payment to be maintained over the course of a pensioner’s lifetime.

Having made inquiries, Revenue has identified that there are around 1,000 of these 5% escalator policies in total in Ireland and that payments have been restricted in around 160 of these policies.  This matter will be raised by Revenue in the course of its meeting with the insurance industry representative body, Insurance Ireland, which is arranged for later this month. Revenue has advised me that it is considering a number of options to address the issue, including changes that may be needed to their pensions manual to ensure policyholders receive the full benefits to which they are entitled.  I have been assured that any changes that may be required will cover all policyholders that are or may be affected.

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