Robert Troy (Longford-Westmeath, Fianna Fail)
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106. To ask the Minister for Finance if it is fair that a person with serious medical conditions is only entitled to a full pension at 75 years of age under the conditions of the approved minimum retirement funds legislation introduced in January 2015 (details supplied). [8306/16]

Michael Noonan (Limerick City, Fine Gael)
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Approved Minimum Retirement Funds (AMRFs) form part of the suite of flexible options available to individuals in relation to their pension funds at retirement, depending on the circumstances.

Prior to Finance Act 1999, individuals with Defined Contribution (DC) pension savings had no option but to purchase a pension income or annuity with their savings after taking the allowable tax-free retirement lump sum. Finance Act 1999 introduced flexibility and choice for certain individuals in relation to their pension savings and those flexible options at retirement have since been extended to all benefits from DC retirement benefit schemes and other DC pension savings. These arrangements are therefore of long-standing.

Choices which are now available to individuals (after taking the tax-free retirement lump sum) include the option to purchase an annuity with the remaining pension funds, to receive the balance of the pension funds in cash (subject to marginal rate income tax, as appropriate), to invest in an approved retirement fund (ARF) or an AMRF, subject to certain conditions.

Under the regime, the options to invest in an ARF or receive the balance of the pension fund in cash 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 minimum level of pension income ("specified income") actually in payment for life at the time the option to effect the ARF or cash option is exercised. 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, that they have the security of an adequate guaranteed pension income throughout the period of their retirement. The specified income requirement is €12,700 per annum and this income requirement can be satisfied, to a significant extent, by the amount of the State pension in payment to an individual in his or her own right (e.g. excluding any payment being received on behalf of a dependent.)

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 amount of the "set aside" is €63,500 or the remaining pension fund amount, if lower, after taking the permissible tax-free retirement lump sum. The funds in an AMRF can be used at any point, in full or in part, to purchase an annuity, including an annuity which, with existing pension income, would be sufficient to meet the minimum specified income requirement after which the AMRF becomes an ARF and any remaining funds therein can be accessed at the owner's discretion, subject to taxation.

The purpose of the AMRF is to ensure that an individual without the minimum guaranteed pension income for life has a pension "safety-net" to provide for the latter years of his/her retirement. Up to Finance Act 2014, the capital invested in an AMRF could not be accessed until the AMRF owner reached age 75 (or meets the guaranteed pension income requirement before then) at which point the AMRF becomes an ARF with unrestricted access to the funds, subject to taxation. While the capital sum in an AMRF could not be accessed, as set out, any income, profits or gains accrued from the investment of the capital could, until 2015, be withdrawn by the AMRF owner, subject to tax at the marginal rate.

I decided to change the arrangements for AMRFs last year so as to allow AMRF-owners voluntary, tax-liable access to a maximum of 4% of their AMRF assets each year until it becomes an ARF. This change provides AMRF owners with access to a definitive and certain level of income from their AMRF rather than the uncertain level of income which access to the accrued income, profits and gains in the AMRF provided.

Under the previous access arrangements for AMRFs, the extent of any income, profit or gains would depend on the performance of the investment options taken and could, therefore, be highly volatile with the possibility of little or no gains accruing in certain years. In addition, the scale of the capital allowed for in an AMRF, at a maximum of €63,500, would not always permit for investment returns of any significant scale to be made using a prudent investment policy.

The change allowing access to a specified percentage of the capital in an AMRF is primarily aimed at those individuals whose AMRF constitutes a significant part of their retirement funds and who, while not wishing to purchase a pension annuity with those funds, may require access to a portion of these funds to provide a more certain form of supplementary pension income prior to reaching age 75. This facility also ensures that an individual will have some remaining funds in the AMRF at age 75 to provide for their remaining years, assuming the individual has decided not to purchase a pension annuity in the meantime.

The arrangements which I have described provide a variety of options and choices for individuals to access their pension savings, subject to certain safeguards which I consider are reasonable and proportionate in present circumstances.