Paul McGrath (Westmeath, Fine Gael)
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Question 116: To ask the Minister for Finance the maximum amount of tax free lump sum that may be claimed on retirement by a person every fifth year since 1960; and if he will make a statement on the matter. [32183/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The rules relating to the maximum amount of tax free lump sum that may be claimed on retirement are as follows.

The statutory rules on retirement benefit schemes, that is occupational pension schemes, provide that lump sum benefits paid to employees at a normal retirement age may not exceed 1.5 times the final remuneration of the employee where he or she served with the employer for 20 years up to the date of retirement. These rules were introduced in the 1972 Finance Act and have remained unchanged since that time. Prior to 1972, a lump sum not exceeding one quarter of the value of the fund available to provide the pension benefits could be taken.

For retirement annuity contracts, RACs, a tax-free lump sum equal to 25% of the value of the annuity fund can be taken as a tax-free lump sum on retirement. This facility has been available since 1974. Prior to that date no lump sum could be taken with regard to RACs. Personal retirement savings accounts, PRSAs, introduced by the Pensions Act 2002, are treated similarly to RACs in that when the benefits are drawn down, 25% of the fund value may be taken tax-free.

The 1999 Finance Act created additional options at retirement for holders of RACs, and certain holders of occupational pension schemes, for example, proprietary directors, and PRSAs subsequently. Under the new arrangements such individuals can opt on retirement to purchase an annuity, to take the value of their pension fund in cash subject to tax or to have the proceeds of their pension arrangements invested in an approved retirement fund, ARF, or approved minimum retirement fund, AMRF. In electing to take up one of these options, an individual is entitled to take a tax-free lump of 25% of the value of the fund.