Brian O'Shea (Waterford, Labour)
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Question 52: To ask the Tánaiste and Minister for Finance the proposals he has to meet the concerns of a person (details supplied) in County Waterford regarding the tax on imputed withdrawals from approved retirement funds from 2007 onwards; and if he will make a statement on the matter. [11125/08]

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 drawn down 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.

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 individual's imputed ARF distribution. This measure was introduced because the internal review of tax relief for pensions provision undertaken by my Department and the Revenue Commissioners in 2005 (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.

The imputed distribution measure is designed to encourage the use of ARFs as intended. The level of the imputed distribution at 3% is not excessive, especially since ARFs are supposed to provide an income stream in retirement for their owners and that actual drawdowns can be credited against the imputed amount. Given the rationale for the introduction of the measure, I do not have any plans at this time to introduce a threshold on the value of an ARF below which the notional distribution arrangements would not apply.