Willie Penrose (Westmeath, Labour)
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Question 105: To ask the Minister for Finance his views on the proposals of the Irish Association of Pension Funds in relation to the tax on ARF's, that the ARF and AMRF retirement options be extended to direct contribution schemes to protect PRSA holders with lower pension savings while still closing off the loophole for high net worth individuals; and if he will make a statement on the matter. [33104/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I have received a pre-Budget submission from the Irish Association of Pensions Funds and I will consider their proposals in the normal way.

I would make the following comments on the specific issue raised by the Deputy in relation to the tax on Approved Retirement Funds (ARFs). The change announced in Budget 2006 and given effect in the 2006 Finance Act, introduced an imputed or notional distribution of 3% of the value of the assets of an ARF on 31 December each year, which notional amount will be taxed at the ARF owner's marginal income tax rate. The change is being phased in over a 3 year period commencing next year. This measure was introduced because the internal review of tax relief for pensions provision undertaken by my Department and the Revenue Commissioners last year (and which was published earlier this year) found that the ARF option was largely not being used, as intended, to fund an income stream in retirement but instead was being used to build up substantial funds in a tax-free environment over the long-term. The imputed distribution measure will encourage the use of ARFs as intended, as funds actually drawn down by ARF owners will be credited against the imputed distribution to arrive at a net imputed amount, if any. Moreover, I would emphasise that ARF owners on lower incomes and who qualify for the higher income tax exemption limits for those aged 65 or over may not be affected at all by the measure, a point not properly acknowledged in the Association's submission.

As regards broader changes to the current arrangements for ARFs, this is a matter best left for consideration in the context of the ongoing consideration of the wider issue of pension and retirement provision in Ireland.