Pearse Doherty (Donegal South West, Sinn Fein)
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188. To ask the Minister for Finance the amount that could be raised for the Exchequer if ARFs and PRSAs had their imputed distribution rates increased to 6% on amounts under €2 million and to 7% on amounts in excess of €2 million. [20070/13]

Michael Noonan (Limerick City, Fine Gael)
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An annual imputed distribution rate of 5% applies to approved retirement funds (ARFs) with asset values of €2 million or less and also to ‘vested’ Personal Retirement Savings Accounts (PRSAs where benefits have commenced) on the same basis. A higher imputed distribution rate of 6% applies to ARFs and/or ‘vested’ PRSAs with asset values of more than €2 million. I assume the Deputy is suggesting an increase in the imputed distribution from 6% to 7% for ARFs and/or ‘vested’ PRSAs of more than €2 million in value and an increase from 5% to 6% where the asset values are less than €2 million. I am informed by the Revenue Commissioners that information provided to them in the context of the tax paid on these deemed or imputed distributions does not include information on the value of the ARFs and/or ‘vested’ PRSAs out of which the distributions are deemed to arise. There is therefore no basis on which a definitive estimate of the impact on the Exchequer of the change mentioned in the question could be compiled.

As an exercise that might provide some indication of the scale of the additional tax yield involved, some historical data made available to my Department from private sector sources provides a breakdown of ARFs by value in respect of a number of providers representing an estimated 40% of the ARF market. There is no similar data available in relation to ‘vested’ PRSAs. Out of a total value of some €2.4 billion in ARFs under management by these providers where the average ARF value was just over €127,000, the total value of those ARFs representing individual funds under €2 million was €2.3 billion. The total value of those ARFs representing individual funds of over €2m was €137 million. Based on a very rough extrapolation of these figures to arrive at a broad potential estimate for the total value of ARFs with assets in these value ranges, the estimated additional income tax yield from applying increased imputed distribution rates to such ARFs as set out above would be about €25 million in a full year.

It is important to note that the deemed or imputed distribution measure is designed to encourage draw downs from ARFs and ‘vested’ PRSAs so that they are used, as intended, to fund a stream of income in retirement in the same way as a retirement annuity, for which ARFs are supposed to operate as a more flexible alternative. The measure, in itself, does not give rise to significant tax revenues as it does not apply to actual draw-downs from ARFs and ‘vested’ PRSAs, which are taxed in the normal way. Moreover, increasing the annual percentage notional distribution for ARFs and ‘vested’ PRSAs as suggested in the question would further increase the risk that the retirement income derived by the owners from such funds could be depleted before death.

Pearse Doherty (Donegal South West, Sinn Fein)
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189. To ask the Minister for Finance the amount that could be raised for the Exchequer by reducing the earnings cap for pension contributions to €70,000. [20071/13]

Michael Noonan (Limerick City, Fine Gael)
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I assume that the Deputy is referring to the current annual earnings cap of €115,000 which operates to limit the level of tax-relieved personal pension contributions in any one year. The annual earnings cap acts, in conjunction with age-related percentage limits of annual earnings, to put a ceiling on the annual amount of tax relief an individual taxpayer can obtain on pension contributions. A breakdown of the cost of tax relief on employee contributions to occupational pension schemes is not available by income tax rate, as tax returns by employers to the Revenue Commissioners of employee contributions to such schemes are aggregated at employer level. An historical breakdown is available by tax rate of the tax relief claimed on contributions to personal pension plans - Retirement Annuity Contracts (RACs) and Personal Retirement Savings Accounts (PRSAs) - by the self-employed and others, to the extent that the contributions have been included in the personal tax returns of those taxpayers. There is, therefore, only a limited statistical basis for providing definitive figures. However, by making certain assumptions about the available information, the Revenue Commissioners inform me that the combined estimated full year yield to the Exchequer from reducing the current annual earnings cap of €115,000 to €70,000 in respect of individual contributions to occupational pension schemes, RACs and PRSAs would be about €130 million.