Terence Flanagan (Dublin North East, Independent)
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73. To ask the Minister for Finance his plans to allow private pension holders to draw down a portion of their pension funds in tax-free lump sums at the age of 50 years; and if he will make a statement on the matter. [32198/14]

Michael Noonan (Limerick City, Fine Gael)
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There are a number of reasons why, under existing policies, pre-retirement access to the main benefits from pension plans or schemes is not permitted, the principal one being that these arrangements (and the associated tax reliefs on contributions and pension fund growth that are available to encourage them) are designed to be long term savings vehicles based on the principle that the benefits will be locked away to help fund an adequate income in retirement.

Retirement lump sums can be taken tax-free at retirement up to a life-time limit of €200,000. It is not clear from the question whether the tax-free lump sum the Deputy envisages is all or part of an individual s retirement lump sum or whether it is simply a proportion of the individual s overall pension fund at the point of drawdown. Neither is it evident what if any limits would apply to the lump sum that could be drawn down early or the conditions that would attach to such a facility.

In any event, the tax-free retirement lump sum is a significant part of an individual s core retirement benefits which is generally only available in pension schemes approved by the Revenue Commissioners at normal retirement age although Revenue approval may also provide for voluntary early retirement from age 50 where scheme rules allow and with the employer s consent. In such situations, however, retirement benefits would be restricted.

For many individuals with limited pension savings the tax-free lump sum may well be the major pension benefit at retirement. In my view, it is preferable not to encourage early withdrawals of core pension benefits of whatever kind, as the inevitable result is to divert the savings initially intended to finance retirement to meet short term financial crises. This clearly poses retirement income adequacy issues and, in that regard, the impact of the early withdrawal of pension savings on the ultimate value of the pension pot at retirement should not be underestimated. Allowing access to all, or even to a proportion, of an individual s retirement lump sum before retirement would undermine core benefits in the long term to the detriment of the individual in his retirement years.

As to the economic benefit of an early access scheme, in other jurisdictions where pre-retirement access to pension savings have been allowed (e.g. Denmark and Iceland), there are doubts about the extent to which the gains in consumption have been attributable to the schemes in those countries.

I gave consideration to all of these issues in my decision to introduce Section 782A of the Taxes Consolidation Act 1997 which provides members of occupational pension schemes with a once-off opportunity to access their Additional Voluntary Contributions (AVCs), pre-retirement. The option is available for a three year period from 27 March 2013, the date that the Finance Act 2013 was passed into law.

The pre-retirement access to a portion of AVCs which I introduced in Budget and Finance Act 2013 is allowed on a tax-neutral basis the contributions were tax-relieved at the individual s marginal rate on the way in and are taxed at the individual s marginal rate on withdrawal. The take-up of the measure to date has not been particularly significant. The measure is, however, designed to enable rather than incentivise individuals to access part of their pension savings beyond their regular or compulsory pension contributions. It is important that individuals continue to provide for their retirement and, it would appear, most individuals with AVCs have to date decided to preserve their AVC pension savings. For these various reasons, I have no plans to extend pre-retirement access to pension savings beyond what is provided for in relation to AVCs.