Finian McGrath (Dublin North Central, Independent)
Link to this: Individually | In context

Question 29: To ask the Minister for Finance his views on a matter (details supplied) regarding a pension. [12162/11]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

The details supplied with the Deputy's question concern various differences between the retirement benefits payable under Defined Benefit pension scheme arrangements in the private sector and the public sector. I cannot comment on the specific examples given in the details. I would point out, in the first instance, that the maximum benefits payable under an occupational pension scheme to an individual retiring at normal retirement age whether in the private or public sector is a pension not exceeding two-thirds of the individual's final remuneration.

In the case of employees who are members of private sector defined benefit occupational pension schemes , pension benefits generally accrue at a basic maximum accrual rate of 1/60th of final remuneration for each year's service up to 40 years which equates to the maximum pension of two-thirds of final remuneration. Private sector schemes almost always give members the right to commute i.e. exchange, part of their pension entitlement for a retirement lump sum up to a maximum of 1.5 times final salary.

Public sector defined benefit schemes on the other hand are, in general, structured so as to offer an accrual rate of 1/80th of final remuneration for each year of service, giving rise to a pension entitlement of 40/80ths or half of final salary. As regards the retirement lump sum, public sector schemes do not provide for the commutation option available in private sector schemes. Instead, such schemes provide for a separate retirement gratuity of up to 1.5 times final remuneration after 40 years service accrued at a rate of 3/80ths of final remuneration for each year of service up to 40 years. The public sector pension of half final salary plus the lump sum of 1.5 times final salary is taken to equate to the maximum pension of two-thirds final salary allowed by the legislation.

In both the private and public sectors, the tax-free lump sum paid from a defined benefit scheme cannot exceed a lifetime limit of €200,000 and the pension paid from the scheme is subject to tax at the individual's marginal rate.

In addition, in order to close off excessive tax-relieved funding for pensions, a maximum allowable pension fund for tax purposes (the Standard Fund Threshold or SFT) was introduced in 2005 at the level of €5 million. This is a lifetime limit with punitive tax on amounts drawn down in pension benefits in excess of that sum. The SFT was substantially reduced in the last Budget and Finance Act to €2.3 million.

Finian McGrath (Dublin North Central, Independent)
Link to this: Individually | In context

Question 30: To ask the Minister for Finance the position regarding a pension in respect of a person (details supplied) in Dublin 5. [12163/11]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

I assume the Deputy is referring to the temporary 0.6% stamp duty levy on pension scheme assets which I announced in this House last week as part of the Jobs Initiative. If the individual's private pension is paid from an occupational pension scheme by way of an annuity i.e. a stream of income purchased by the trustees of a pension scheme in the name of the individual from a life company at the point of the scheme member's retirement, then the levy should not impact on the person mentioned in the details supplied, as an annuity is not a pension fund. However, the details supplied with the question are not sufficient to allow me to be definitive on this point.

The chargeable persons for the purpose of the pension fund levy will be the scheme administrators, that is the trustees or other persons having the management of the assets of the pension schemes or plans. Where pension scheme assets are held in the form of contracts of assurance with life offices, the insurer will be the chargeable person. It will be up to those trustees and administrators to decide whether and how the levy should be passed on and who should be impacted and to what extent, given the particular circumstances of the pension schemes or pension plans for which they are responsible. In that regard, and as already indicated since the announcement of the levy, legislative provision is being made to allow pension scheme trustees or administrators the option to adjust the benefits payable under pension schemes or plans.

Finance (No 2) Bill 2011 is being published today and contains, among other things, the provisions which will give effect to the pension fund levy.