Derek McDowell (Labour)

While I do not wish to argue about it, I must say that I am somewhat frustrated. The amendments I proposed sought to restrict the amount of tax relief available to a small number of people who have large pension funds by reducing the amount of the standard pension that would be available as part of an ARF. The amendments I proposed sought specifically to reduce the €5 million threshold to €2 million and the once-off, tax-free lump sum payment from €1.25 million to €500,000. It is beyond me how such proposals could become a charge on the people. Let us not go there, however. I will argue their merits, if I may, in the context of the section.

The review of the pension provisions was carried out internally within the Department. It is a fine section which is well set out and the job was well done within the Department. Its findings, however, were pretty scandalous.

When we changed the pension provisions five or six years ago, some concern was expressed that there could be abuse of this kind but none of us imagined that it could be quite as systematic as it has proven to be. The Department found in its review that of the approximately 1,000 ARFs in existence, there was little movement within the vast bulk of them. Rather than providing a more flexible way of organising a stream of income, most of them have simply become a fund into which money is stashed tax free and allowed to accumulate value tax free, no doubt with the intention sooner or later of being passed on by way of inheritance, which is also tax free. That is the way in which these ARFs have been used. The Minister has, quite rightly, moved to ensure they will in future be used for their intended purpose, namely, to provide a stream of income or a pension. That, after all, was the reason for the provision. In that context, I find it surprising that the Minister has opted for such high limits.

Elsewhere in the section an indicator is given of a multiplier of 20 as being the relationship of the annuity that would have been provided by a certain sum. Working on that rough basis, a fund of €5 million would allow for an annual stream of income — a pension or an annuity — of approximately €200,000. That strikes me as being pretty extraordinary. I do not see why the State should seek to revise the measure of quite generous valuable tax incentives it already gives, in order to provide such high pensions. People who can afford six-figure pension streams per annum can well afford to do so without the benefit of tax relief, at least on the marginal amount. Therefore, I do not think that a figure of €5 million, or anything remotely close to it, is justified.

The same argument applies pro rata to the lump sum. If people can afford to take out a lump sum payment of €1.25 million when they retire, should we really seek to give them tax relief to that extent? I have no problem with people getting a generous lump sum when they retire but a figure of €1.25 million is far too high.

I read the Department's report in detail and I know the motivation for the notional distribution figure of 3% but I wonder if it is high enough to produce the desired result. I know that figure will be phased in over a period of three years but it seems to me that people are using funds to acquire and assimilate assets, rather than to provide themselves with a pension. I am not sure that they will be diverted from that intent by a notional distribution of just 3%. Perhaps it will have the effect the Minister expects or hopes for but I am not sure that distribution figure is sufficiently high to produce that effect. I would like to hear the Minister's comments in that regard.