Jimmy Deenihan (Kerry North, Fine Gael)
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Question 280: To ask the Minister for Finance if he will amend existing legislation to allow persons who have invested in AVCs to a refund of their contributions in special circumstances such as serious illness; and if he will make a statement on the matter. [20891/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I have been informed by the Revenue Commissioners that where an occupational pension scheme does not provide its members with maximum pension entitlements (i.e. two thirds of final remuneration at normal retirement age) an employee may top up his or her benefits by paying what are know as Additional Voluntary Contributions, or AVCs. An employee can contribute 15-40% of salary as between contributions to the occupational pension scheme and AVCs, depending on age, and claim full tax relief, subject to an overall annual earnings limit which is currently set at €254,000. Overall benefits as between the main scheme and the AVCs may not exceed the maximum benefits permissible.

The Revenue Commissioners have also indicated that in the case of serious illness, provision already exists in the tax legislation governing pensions to facilitate the payment of early retirement benefits on ill-health grounds. This applies to benefits funded through AVCs as well as to the main scheme benefits. Whilst the level of ill health retirement benefits payable in any particular case will depend on the particular scheme rules and the type of scheme involved i.e. defined benefit or defined contribution, the legislation permits such benefits to be paid straight way, irrespective of the employee's age. In addition, the benefits to be paid in such circumstances are based, not on the actual service record of the employee, but on the service record that the individual could have attained if he or she had continued in service until normal retirement age.

An employee retiring on ill health grounds with AVCs need not use all of them to top-up main scheme benefits but has the option of using part of the AVCs to maximise his or her tax free lump sum under the main scheme and, where AVC funds remain, to avail of the ARF Option under which he or she can invest the AVCs in an approved retirement fund or take them as a lump sum taxable at the individual's marginal rate of tax. An individual availing of the ARF option is the beneficial owner of the assets in the ARF and has greater control and flexibility as to how the assets are invested and used.

The Revenue Commissioners also permit approved pension schemes to include a rule allowing for full commutation of a pension (including AVCs) if at the time it becomes payable the recipient is in exceptional circumstances of ill-health where the expectation of life is very short. A portion of the commuted pension in such cases will be exempt from tax with the remainder being taxed at 10%. In light of the fact that current legislation already facilitates the early payment of pension benefits, including AVCs to individuals with serious or terminal illness, I see no reason to change the legislation as suggested.