Bernard Durkan (Kildare North, Fine Gael)
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143. To ask the Minister for Finance if he will clarify the definition of the €12,700 guaranteed income required in situations where life assurance policies are capitalised and where the maximum immediate capitalisation is sought by the contributor; if such guaranteed income is required to originate from a State pension or private income; and if he will make a statement on the matter. [6290/14]

Michael Noonan (Limerick City, Fine Gael)
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I assume that the guaranteed income requirement referred to in the question relates to one of the conditions to be satisfied in order for an individual to invest the proceeds of certain pension savings into an Approved Retirement Fund (ARF).

ARFs were introduced by Finance Act 1999 to provide control, flexibility and choice to certain individuals in relation to the drawing down of benefits from their pension plans. Prior to that Act, any person taking a pension from a Defined Contribution (DC) scheme or a Retirement Annuity Contract had no choice but to purchase an annuity with their remaining pension pot after drawing down the permissible tax-free retirement lump sum.

The choices which then became available included the existing option to purchase an annuity with those remaining funds, and new options to receive the balance of the pension funds in cash (subject to tax, as appropriate), to invest in an ARF or an Approved Minimum Retirement Fund (AMRF), subject to certain conditions. Access to these flexible options was extended to all main benefits from retirement benefit schemes (other than Defined Benefit pension arrangements) in Finance Act 2011. ARFs and AMRFs are therefore investment options into which the proceeds of these pension arrangements can be invested on retirement. It is not clear from the details provided in the question if the life product referred to represents a pension arrangement to which the flexible options would apply.

Under the regime the options to:

-invest in an ARF; or

-receive the balance of the pension fund in cash (subject to tax, as appropriate)

 are subject to conditions. The conditions include the requirements that the individual be over 75 years of age or, if younger, that the individual has a guaranteed level of pension income ("specified income") actually in payment for life at the time the option is exercised. The minimum level of specified income currently stands at €12,700 per annum. The purpose of the specified income requirement is to ensure, before an individual has unfettered access to their remaining retirement funds via an ARF or by way of the cash option (subject to tax), that they have the security of an adequate guaranteed pension income throughout the period of their retirement. 

 Specified or guaranteed income means income that an individual is actually in receipt of in his or her own right, at the time the ARF option is exercised, from a pension in payment for the life of the individual (not a pension to which he or she would have an entitlement in the future). Specified income includes the State contributory or non-contributory pension (excluding amounts paid in respect of a dependent spouse or other individual) or an equivalent pension in payment from another State. The income requirement can also be satisfied by private pension income or an annuity in payment for life.Where the minimum specified income test is not met, and an individual does not wish to purchase an annuity, then an AMRF must be chosen into which a "set aside" amount must be invested. The maximum "set aside" amount required to be invested in an AMRF is €63,500 of the pension fund or the remainder of the pension fund after taking the tax-free lump sum if less than €63,500. Any pension fund remaining after the investment of €63,500 in an AMRF may be invested in an ARF. The purpose of an AMRF is to ensure a capital or income "safety net" throughout the latter period of their retirement for individuals with pension income below the specified income limit.  The capital in an AMRF is not available to an individual until he or she reaches 75 years though any income generated by the fund can be drawn down subject to tax. The capital in an AMRF can be used by the owner at any time to purchase a pension annuity and the AMRF can be changed to an ARF with access to the capital sum (subject to taxation) before the age of 75 where the specified income test is met before that age.