Róisín Shortall (Dublin North West, Independent)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance if he will review the legislative provisions which restrict a holder of pension bond to access the funds prior to their fiftieth birthday; if he proposes to include financial hardship as one such ground for accessing funds at an early stage; and if he will make a statement on the matter. [47004/12]

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

Revenue approval of occupational pension schemes is given on the basis that retirement benefits may, generally, be paid at normal retirement age which cannot fall before age 60 or after age 70. Most schemes would have a normal retirement age of 65. Revenue approval may also provide, however, for early retirement from age 50 where scheme rules allow and with the employer’s consent. In such situations benefits are restricted. In the case of personal pensions such as retirement annuity contracts (RACs) and Personal Retirement Savings Accounts (PRSAs) benefits can be taken from age 60 with no retirement condition. Buy-out bonds, which are a special type of defined contribution plan which can be availed of by members of occupational pension schemes leaving service or where schemes are winding-up can normally take benefits at any time from age 50.

I am advised by the Revenue Commissioners that in relation to all of these pension arrangements benefits can be taken at any stage where retirement is due to serious ill-health or incapacity. I have no plans to amend the above arrangements for accessing pension benefits.

There are a number of reasons why, under existing policies, early withdrawals of pension savings are not permitted, the principal one being that pension schemes and plans (and the associated tax reliefs) are designed as long term savings vehicles based on the principle that the savings will be “locked away” until retirement. This, in effect, is the quid pro quo for the tax relief which is available to encourage long term saving for retirement.

A number of proposals have been made that individuals should be allowed access to their pension savings prior to retirement. Various rationales have been advanced to justify these proposals including that such access would allow those individuals to pay down mortgage and other debt and would otherwise provide a boost to economic activity. This is not a simple matter. During 2011, at the request of the Government’s Economic Management Council (EMC), an Ad-hoc group was established under the chairmanship of the Department of Social Protection to consider the idea of allowing people to access their pension savings before pension age in order to assist them in paying down debt. The ad-hoc group presented a detailed report to the EMC in September 2011. The conclusions of the Ad-hoc Group report were that:

- There is no evidence that, in general, the group likely to be most affected by mortgage debt (or other debt) has access to sufficient pension savings to make a difference to their situation.

- The legislative and administrative implications for such a scheme would be extremely complex and would appear excessive given the overall impact.

- Longer term difficulties whereby people are not making adequate provision for their retirement would be exacerbated, with potential for increased demands on the State.

- Individuals cashing in their pension savings now would get poor value in current circumstances which they would struggle to replace in the future.

The “Keane Group” on mortgage arrears did not dispute these findings and early access to pension savings did not feature among the recommendations of that Group. A more general scheme of early access to pension savings would present significant problems in terms of the proper targeting of the use of accessed funds and controls over potential abuse.

The tax treatment of pension savings for which I have responsibility is only one aspect of the broad policy of encouraging people to provide for an adequate income in retirement beyond the basic State pension. This policy area is the responsibility of my colleague, Ms Joan Burton TD, Minister for Social Protection, who I know is also aware of the proposals being made for early access to pension savings. The OECD is currently carrying out an independent review of long term pension policy in Ireland on behalf of the Minister for Social Protection. I have been advised, in response to a request from me in this matter, that the terms of reference of the independent review are such as to facilitate consideration of the issue of early access to pension savings and I would expect that the OECD review would deal with this issue.