James Bannon (Longford-Westmeath, Fine Gael)
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309. To ask the Minister for Finance his plans to reduce the amount of tax on a particular pension scheme (details supplied); and if he will make a statement on the matter. [41489/14]

James Bannon (Longford-Westmeath, Fine Gael)
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310. To ask the Minister for Finance his views regarding the unintended consequences to a particular pension scheme and its members (details supplied); and his plans to address this issue; and if he will make a statement on the matter. [41490/14]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 309 and 310 together.

While it is not particularly clear from the details supplied with the question, I am assuming that the Deputy is referring to the changes to the maximum allowable pension fund at retirement for tax purposes (known as the Standard Fund Threshold or SFT) which I introduced in Budget 2014 and Finance (No 2) Act 2013 and which came into law in December 2013.

The primary purpose of the changes made to the SFT regime last year is to further restrict the capacity of higher earners to fund or accrue large pensions through tax-subsidised sources. I have no plans to undo those changes.  It is important to emphasize, however, that the SFT regime and the changes made to it last year do not impact on the vast majority of individuals in pension saving arrangements.

The SFT regime addresses the problem of pension overfunding and excessive pension accrual by dealing with it at the point of pension drawdown in retirement rather than by applying restrictions to pension savings or accrual upfront. The regime achieves this by imposing a significant tax charge on the value of retirement benefits above set limits when they are drawn down. In this way it acts to discourage the building up of large pension funds in the first place or unwinds the tax advantage of such overfunding by clawing back, through the significant tax charge, the tax relief granted.

The main changes made by Budget 2014 and Finance (No 2) Act 2013 can be summarised as follows:

- Firstly, the absolute capital value of the SFT was reduced, with effect from 1 January 2014, from €2.3m to €2m. 

- Secondly, the valuation factor to be used for establishing the capital value of defined benefit (DB) pension rights at the point of retirement, where this takes place after 1 January 2014, has been changed from a standard valuation factor of 20 to a range of higher age related valuation factors that will vary with the individual's age at the point at which the pension rights are drawn down.

- Lastly, in calculating the capital value of a DB pension at the point of retirement, transitional arrangements provide for a split calculation where part of the pension had already been accrued at 1 January 2014 so that the part accrued up to that date will be valued at a factor of 20 and the part accrued after that date valued at the appropriate higher age-related valuation factor.

As occurred on the occasion of the introduction of the SFT regime in 2005, and again when the value of the SFT limit was reduced to €2.3m in 2010, the legislation contained in Finance (No. 2) Act 2013 provides for an individual who has pension rights on 1 January 2014 in excess of the new lower SFT limit of €2m, to 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, and individuals with PFTs from 2005 or 2010 retain those PFTs.

The changes and grandfathering arrangements outlined above apply, as appropriate, to DB and defined contribution (DC) pension arrangements in both the private and public sectors.