Written answers

Tuesday, 27 January 2015

Department of Finance

Pension Provisions

Photo of Terence FlanaganTerence Flanagan (Dublin North East, Independent)
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206. To ask the Minister for Finance the position regarding PRSA accounts (details supplied) in Dublin 5; and if he will make a statement on the matter. [3548/15]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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A Personal Retirement Savings Account (PRSA) is an easy access private pension savings vehicle designed to allow individuals save for retirement flexibly. PRSAs may be taken out by anyone, regardless of employment status, are transferable from job to job and are available from a variety of authorized providers. However, they have particular relevance for those who are not members of occupational pension schemes and the self-employed (where they operate as an alternative to retirement annuity contracts). In essence, a PRSA is a personally held contract-based defined contribution retirement arrangement between an individual and an authorised PRSA provider, such as an insurance company, credit institution or investment firm. They are maintained in the form of an account that holds units in investment funds managed by the authorized providers.

An individual may make tax-relieved contributions to a PRSA and, where the PRSA is effected by an employer in circumstances where there is no employer-sponsored occupational pension scheme, employers may also contribute but are not obliged to do so. Pension benefits under a PRSA may, with some exceptions, be taken from age 60 to age 75. A tax-free retirement lump sum not exceeding 25% of the fund can be taken, subject to a maximum tax-free amount of €200,000 with the remainder of the fund used to purchase an annuity, retained in the PRSA and drawn-down over time or used to avail of the flexible retirement options which include investing in an Approved Retirement Fund (ARF). All withdrawals are subject to income tax at the individual's marginal income tax rate as appropriate.

There are a number of reasons why, under existing policy, pre-retirement access to pension savings held in the form of pension plans or schemes is not permitted. The principal reason is that these arrangements (and the associated tax reliefs on contributions and pension fund growth) 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. This is why the Government encourages pension savings through generous tax relief on contributions and pension fund growth.

That said, in Budget and Finance Act 2013, I introduced Section 782A of the Taxes Consolidation Act 1997 to provide members of occupational pension schemes with a once-off opportunity to access a part of their Additional Voluntary Contributions (AVCs), including AVCs made by a scheme member to an AVC-PRSA product, prior to 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 take-up of the measure to date has not been particularly significant and most individuals have decided to preserve their AVC pension savings. I would emphasise, of course, that the pre-retirement access allowed for in this initiative is to additional pension savings over and above an individual's core savings in his or her main employer-sponsored scheme. Main pension scheme savings are generally not accessible pre-retirement.

I appreciate that for those in financial difficulties, it is natural to look to their pension savings as a possible means of helping to solve those difficulties. However, I am strongly of the view that it is preferable not to allow early unplanned withdrawals of core pension savings as an inevitable result is to divert the savings, initially intended to finance retirement, to meet short term financial crises. Allowing such access would clearly pose retirement income adequacy issues and the impact of the early withdrawal of pension savings on the ultimate value of the pension pot at retirement should not be underestimated.

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.

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