Michael McGrath (Cork South Central, Fianna Fail)
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7. To ask the Minister for Finance the reasons the option of early encashment of AVCs has resulted in significantly less yield than expected; and if he will make a statement on the matter. [16172/14]

Michael McGrath (Cork South Central, Fianna Fail)
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This question relates to the initiative in budget 2013 pertaining to early access to certain additional voluntary contributions, AVCs. I support this worthwhile initiative, but the figures for the drawdown thus far have been disappointing. The expectation at the time it was announced was that in the first year the additional amount would be approximately €100 million, and that the yield would be approximately €200 million over three years. I understand the actual amount raised, however, is about €25 million thus far. Has the Minister any plans to review it or to broaden the scope to make it more attractive so that more people will avail of what I think is a worthwhile initiative?

Michael Noonan (Limerick City, Fine Gael)
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The Finance Act 2013 provides members of occupational pension schemes with a three-year window of opportunity from 27 March 2013 during which they can opt to draw down, on a once-off basis, up to 30% of the accumulated value of AVCs. The provisions also apply to AVCs made to personal retirement savings accounts. Administrators of AVC funds, including PRSA administrators, are required to provide within 15 working days of the end of each quarter, commencing with the quarter ending on 30 June 2013, certain statistical information to the Revenue Commissioners in relation to AVC and PRSA pre-retirement transfers or encashments made during the quarter in question. The tax deducted from the aggregate value of transfers made in the period to 31 December 2013 - the latest date for which details are available - was close to €26 million. The yield from this measure was estimated in budget 2013 at €100 million in 2013 and €200 million in total over three years.

Pre-retirement access to a portion of AVCs is allowed on a tax-neutral basis. The contributions were tax-relieved at the individual's marginal income tax rate on the way in and are taxed at the individual's marginal income tax rate on withdrawal. The take-up of the measure to date has not been particularly significant, with transfers or encashments running at an average of €22 million per quarter up to the end of 2013. I would remind the Deputy, however, that this is a measure which was designed to enable rather than to incentivise individuals to access part of their pension savings beyond their regular or compulsory pension contributions. It is important that individuals continue to provide for their retirement and it would appear that most individuals with AVCs have, to date, decided to preserve their AVC pension savings for this purpose.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister. The issue of early access to pensions raises its head every now and then. It is an important issue that needs to be debated. The scope of what the Minister introduced in budget 2013 was quite narrow. For example, employer-paid contributions were excluded, as were regular employee contributions, self-employed personal pensions, normal PRSAs and AVCs which were made for the purposes of purchasing notional added years. I agree there cannot be a free-for-all situation. It is important to continue to support people who are saving for their retirement, and there has to be a limit to the circumstances in which people are allowed early access to their pension savings. However, there is a need to examine other scenarios such as cases of critical illness or over-indebtedness, or cases in which a person's financial position could be greatly improved if early access was allowed. Has the Minister any plans to review this initiative with a view to possibly broadening its scope?

Michael Noonan (Limerick City, Fine Gael)
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From a policy point of view, I am a bit ambivalent about it. I realise the importance of making proper provision for pension purposes; however, if people are absolutely financially stuck they might need access to savings they have put away in AVCs. Certainly the drawdown was less than I expected.

I would have thought, as a result of the advocacy by different groups and the personal representations made by Deputies on all sides of the House, that there would be a bigger take-up. That said, the Finance Bill provided for a three year wind-down starting in June 2013. I will look at the issue in the context of the next Finance Bill and, in particular, take into account the suggestions made by the Deputy to see if we will let it run, as initiated in the last Finance Bill, or modify it to make it more attractive, as the Deputy would describe it. I do not want to incentivise it. It is tax neutral.

Michael McGrath (Cork South Central, Fianna Fail)
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I agree that early access can only be allowed in very limited circumstances and that it is policy to encourage people to provide for their retirement, but one of the reasons some people are reluctant to join a private pension scheme is they believe, rightly, that the money will be locked away for a very long time and that, come what may in their own lives - as we know, life throws the unexpected at us - there is no provision to access that money. In very narrow circumstances we could allow people to access a proportion, not all, of the money they have put away because in the circumstances I have outlined where there is loss of employment, a critical illness or they are simply drowning in debt, the money would be of far more use to them than it will be in ten or 15 years time when retirement is on the horizon. There are limited circumstances in which the economy, as well as the individuals concerned, would benefit and it might encourage more people to join a pension scheme if there was a little flexibility.

Michael Noonan (Limerick City, Fine Gael)
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The points are well made. I will examine the matter again before the next Finance Bill is introduced when I will take the Deputy's views into account. We may have a further discussion on it at some stage at the finance committee-----

Michael McGrath (Cork South Central, Fianna Fail)
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Yes.

Michael Noonan (Limerick City, Fine Gael)
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-----in order that I can establish the views of a wider group of Deputies. That is not to say the Deputy's views are not very valuable because what he is saying is correct.

Pearse Doherty (Donegal South West, Sinn Fein)
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While I agree that we should not be incentivising people to do this and that clearly the pension industry is incentivised - that is a different debate - I advise caution about one of the issues mentioned by Deputy Michael McGrath, namely, over-indebtedness. If there was access to AVCs to meet debt, the banks would force people to forgo their future for the present. That is the problem and the issue needs to be dealt with. We are in a broken system, but there are ways by which the issue of debt should be dealt with in a humane way. However, allowing one's bank to rob one's future should not be on the cards. I strike that note of caution.