Terence Flanagan (Dublin North East, Fine Gael)
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Question 48: To ask the Minister for Finance the position regarding the tax implications for lump sum payments for public servants in respect of a person (details supplied) in Dublin 13; and if he will make a statement on the matter. [26683/11]

Michael Noonan (Limerick City, Fine Gael)
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I understand that the Deputy is interested in the 'grace period' and its effects. The Financial Emergency Measures in the Public Interest (No. 2) Act 2009 provided for a period within which pensions are unaffected by the pay cuts introduced in that Act. This 'grace period' was due to expire by the end of 2010. However, it was extended to 29 February 2012 to avoid too large a number of public service retirements in 2011 and to spread the extra pension lump sum costs over a more manageable period in both 2011 and 2012. Also, in July this year a 3 month minimum notice period for retirement was introduced for the public service. The purpose of this minimum notice period is to protect services by giving management information about the number of staff retiring in a particular area and to assist in planning how best to maintain services.

I am informed by the Revenue Commissioners that if the individual in question retires on or before 29 February 2012 her retirement lump sum will be based on her salary prior to the salary reductions introduced by the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 with effect from 1 January 2010. If she retires on or after 1 March 2012, her retirement lump sum will be based on her salary, as reduced by the 2009 Act measures.

I am also informed that the taxation of retirement lump sums from Revenue approved pension arrangements is based on the legislative arrangements in force when the lump sum is paid. The following arrangements currently apply:

* Lump sum amounts up to €200,000 are paid free of tax. They are also paid free of USC.

* The portion of a lump sum between €200,001 and €575,000 is taxed on a ring-fenced basis at 20%. (This means that no tax credits or other tax reliefs can be set against this portion of the lump sum.) No USC is chargeable.

* Any amount of a lump sum in excess of €575,000 is taxed at the individual's marginal rate of tax (credits and other tax reliefs are available). In this instance, USC is chargeable on the excess.

The threshold figures detailed above are lifetime limits with lump sums paid on or after 7 December 2005 aggregating with any later lump sums in counting towards those thresholds. As with all taxation measures, these arrangements are subject to any review that might occur as part of the annual Budget and Finance Bill process.