Pearse Doherty (Donegal South West, Sinn Fein)
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218. To ask the Minister for Finance the number of persons that will be affected by the decision to reduce the standard fund threshold from €2.3 million to €2 million; and the amount on average he expects these persons to lose from their annual pension contribution tax reliefs. [46906/13]

Pearse Doherty (Donegal South West, Sinn Fein)
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219. To ask the Minister for Finance the way contributions to pensions above the standard fund threshold will be treated for tax purposes, where the person has applied for or claimed a personal fund threshold from the Revenue Commissioners. [46907/13]

Pearse Doherty (Donegal South West, Sinn Fein)
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220. To ask the Minister for Finance if he will respond to statements from those within the pension industry and others that changes to the standard fund threshold will result in an effective tax rate of 70% being paid on pension draw down in excess of €60,000 per annum. [46908/13]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 218 to 220, inclusive, together.

It is difficult to be definitive about the number of individuals that may be affected by the changes to the Standard Fund Threshold (SFT) regime. Among other reasons, this is because the changes are likely to have both direct impacts and indirect behavioural impacts. The direct impacts will be on individuals whose pension savings or entitlements will be in excess of the reduced SFT on 1 January 2014 (and who may seek a Personal Fund Threshold (PFT)) and those whose pension savings or entitlements may be below the threshold on that date but, with future contributions or accruals, may exceed the threshold in time. For both of these groups where the SFT or PFT is exceeded at the point of retirement, chargeable excess tax will arise. However, the changes are also likely to mean that individuals (generally in the private sector) who may otherwise be affected by the amendments to the SFT, and who have the flexibility to do so, may change behaviour and opt out of additional pension saving or pension accrual, in circumstances where they can obtain compensatory payments from their employer, in order to avoid breaching the SFT or their PFT. Overall, the changes could potentially impact, both directly and indirectly, on up to 10,000 individuals in the short to medium term.

The estimated yield from the changes to the SFT regime is €120 million and is expected to arise in two main ways. Firstly, from the cessation of tax-relieved contributions to pension saving from those employees and individuals in the private sector affected in the short to medium term by the changes and secondly by the conversion, to some degree, of employer pension contributions and pension promises in respect of those employed individuals into compensatory current taxable remuneration. In addition, some of the yield will also arise from affected individuals who remain in pension arrangements and continue to contribute to them or accrue benefits under them, and will take the form of chargeable excess tax payable at retirement where their SFT or Personal Fund Threshold (PFT), as appropriate, is exceeded. This increased tax will effectively claw back any tax subsidy which helped fund the excess over the SFT or PFT.

An individual who has pension savings or pension rights on 1 January 2014 in excess of the new lower SFT limit of €2 million may claim a Personal Fund Threshold (PFT) from Revenue in order to protect or “grandfather” the value of those rights on that date. This is subject to a maximum PFT of €2.3m (i.e. the value of the current SFT). For such an individual, any further pension contributions or pension accrual will give rise to a chargeable excess in due course. If the value of an individual’s pension arrangements is below the SFT on 1 January 2014, they can continue to accumulate up to €2 million through further tax-relieved pension contributions and/or pension accrual (subject to the various annual pension contribution and earnings limits that apply) without any risk of a chargeable excess arising.

On each occasion that an individual becomes entitled to receive a benefit under a pension arrangement for the first time (called a “benefit crystallisation event” or BCE) they use up part of their SFT or PFT, as the case may be. When the capital value of a BCE, either on its own or when aggregated with earlier BCEs, exceeds the SFT, or an individual’s PFT, the excess is subject to an immediate tax charge of 41%, which has to be paid upfront by the pension fund administrator and recovered from the individual. In addition, when the remainder of the excess is subsequently drawn down as a pension (or, for example, by way of a distribution from an Approved Retirement Fund or vested Personal Retirement Savings Account) it is also subject to tax at the individual’s marginal rate, thus giving rise to an effective income tax rate on a chargeable excess of some 65%, excluding any liability to USC and PRSI. In this way, the SFT regime addresses the problem of pension overfunding and excessive pension accrual by imposing a penal effective tax charge on the value of retirement benefits above set limits when they are drawn down, thus discouraging the building up of large pension funds in the first place or unwinding the tax advantage of such overfunding.

Pearse Doherty (Donegal South West, Sinn Fein)
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221. To ask the Minister for Finance the number of persons that will be affected by the abolition of the one parent family tax credit. [46912/13]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that based on the most up to date data it is estimated that up to 15,400 individuals may be affected by the restriction of the restructured credit to the principal carer. However, ultimately it will depend on the circumstances of each individual carer and the allocation of childcare responsibilities, which is primarily for parents to agree.