Terence Flanagan (Dublin North East, Fine Gael)
Link to this: Individually | In context

Question 177: To ask the Minister for Finance if he will reply to the case of a person (details supplied) in Dublin 5; and if he will make a statement on the matter. [13846/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

Prior to Finance Act 1999, any person taking a pension under a defined contribution scheme or a Retirement Annuity Contract (RAC), was required to purchase an annuity with the pension fund money remaining after the drawdown of the appropriate tax-free lump sum.

Finance Act 1999 introduced significant changes which gave a considerable degree of control, flexibility and personal choice to certain categories of individuals in relation to the drawing down of benefits from their pension plans. These choices include the following options:

to purchase an annuity from a life assurance company,

to receive the balance of the pension fund in cash (subject to tax, as appropriate),

to invest in an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF), as appropriate,

or a combination of these.

ARFs and AMRFs are not pension schemes per se. They are investment options into which the proceeds of certain pension arrangements can be invested on retirement. Individuals are entitled to take their tax-free lump sum option as part of the election for an ARF. Beneficial ownership of the assets in an ARF/AMRF rests with the individual. The ARF/AMRF is managed by a Qualifying Fund Manager and pays no tax on its investment income or capital gains while the funds are invested in it.

The option to have all or part of an individual's accumulated pension fund placed in an ARF must be exercised not later than the date on which the annuity or pension would otherwise become payable. The option is open to a qualified person who is either over 75 years of age or who has a guaranteed pension income (specified income) actually in payment for life of at least €12,700 per annum. Where the minimum specified income test is not met, then an AMRF must be chosen into which the first €63,500 of the pension fund or the whole of the fund, if less than this amount, must be invested (alternatively an annuity can be purchased with the first €63,500 of the pension fund and the balance placed in an ARF). The capital in an AMRF is not available to an individual until he or she reaches 75 years of age, though any income generated by the fund can be drawn down subject to tax. The purpose of an AMRF is to ensure a capital or income "safety net" for certain individuals throughout the period of their retirement.

All of the conditions and requirements attaching to investment in an ARF or AMRF are set out in sections 784A to 784D of the Taxes Consolidation Act 1997 (reflecting Finance Act 1999 and subsequent Finance Act changes). The trustees of the individual's pension fund and the Qualifying Fund Manager with whom the individual invested in an AMRF would have been aware of the requirements involved.

As is stated in the recently published National Pensions Framework, the Government is aware that individuals who invested their funds in an AMRF because they did not satisfy the specified income requirements at retirement, may later satisfy those requirements. Notwithstanding this, such individuals are effectively locked into the AMRF until they reach 75. The Government has decided to allow those individuals who meet the specified income conditions after retirement to have their AMRFs treated as ARFs to which they will have access. The details of this change will be worked out during the implementation phase of the Framework and legislated for in due course.