Liz McManus (Wicklow, Labour)
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Question 77: To ask the Tánaiste and Minister for Finance his views on amending the legislation relating to approved retirement funds with respect to the taxation of the 3% imputed distribution from the age of 60 onwards to ensure that a pensioner's income stream from the age of 65 is not undermined during the five years immediately preceding turning 65; and if he will make a statement on the matter. [7721/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The 2006 Budget and Finance Act introduced an imputed or notional distribution of 3% of the value of the assets of an Approved Retirement Fund (ARF) on 31 December each year, where the notional amount will be taxed at the ARF owner's marginal income tax rate. Funds actually drawndown by ARF owners will be credited against the imputed distribution in that year to arrive at a net imputed amount, if any, for the year.

The imputed distribution measure was introduced because the internal review of tax relief for pensions provision undertaken by my Department and the Revenue Commissioners in 2005 (and which was published in early 2006) 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 funds in a tax-free environment over the long-term.

As a transitional measure, the 3% rate is being phased in over the period 2007 to 2009, with 1% applying in 2007, 2% in 2008 and the full 3% in 2009 and each subsequent year. The new regime applies to ARFs created on or after 6 April 2000 where the ARF holder is 60 years of age or over for the whole of a tax year. The new provisions do not impact on Approved Minimum Retirement Funds (AMRFs), although funds drawn from an individual's AMRF can also be credited against the that individual's imputed ARF distribution.

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. This measure restricts the capacity of individuals to use ARFs purely as long-term tax-exempt vehicles. I have no plans at this time to amend the legislation as proposed.