Written answers

Tuesday, 14 June 2016

Department of Finance

Financial Services Regulation

Photo of Robert TroyRobert Troy (Longford-Westmeath, Fianna Fail)
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171. To ask the Minister for Finance the changes to legislation surrounding approved minimum retirement fund investments in each of the years 2013 and 2014; his plans to alter the legislation; and if he will make a statement on the matter. [15892/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Firstly, I should explain by way of background, that under the flexible options at retirement arrangements (the so-called "ARF option"), where an individual in a Defined Contribution pension savings arrangement is under age 75 at the time of exercising the option and does not meet the guaranteed pension income requirement of €12,700 per annum, that individual must place a maximum "set aside" amount of €63,500 (or the remainder of the pension funds if less than €63,500 after taking the retirement lump sum) in an Approved Minimum Retirement Fund (AMRF) or purchase an annuity with those funds.

Any amount of remaining pension funds in excess of €63,500 can be invested in an Approved Retirement Fund (ARF) with access to those funds at the owner's discretion (subject to tax, at the marginal rate and having regard to the imputed distribution requirements).

Finance Act 2011 increased the guaranteed pension income requirement from €12,700 per annum to an amount equal to 1.5 times the State Pension (Contributory) which at that time would have amounted to €18,000 per annum. That Act also increased the maximum "set-aside" amount required to be placed in an AMRF from €63,500 to an amount equivalent to 10 times the State Pension (Contributory) which at that time would have amounted to €118,900.  In Finance Act 2013, I decided to rescind those increases and to return the pension income requirement and the "set-aside" requirement to their original levels (€12,700 and €63,500, respectively). Finance Act 2013 also included provisions to ensure that individuals impacted by the higher limits introduced by Finance Act 2011 were not disadvantaged.

In Finance Act 2014, I introduced changes to allow owners of AMRFs to draw-down up to 4% of the value of the assets in such funds on one occasion in each year instead of the facility to draw-down the accrued income and gains of such funds, as had applied prior to the changes.

The purpose of the AMRF is to ensure that an individual without the minimum guaranteed pension income for life has a pension "nest-egg" 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 met 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, up to the Finance Act 2014 changes, be withdrawn by the AMRF owner, subject to tax at the marginal rate.

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 €63,500, would not always permit for investment returns of any significant scale to be made using a prudent investment policy.

I decided to change the arrangements for AMRFs so as to allow AMRF owners voluntary, tax-liable access to a maximum of 4% of their AMRF assets each year up to the point at which the AMRF 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.

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 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 not purchased a pension annuity in the meantime.

Individuals whose AMRF represents a less significant part of their retirement funds and whose circumstances would allow for greater investment risk and, therefore, potentially greater investment returns will be limited to the 4% level of asset draw down. However, this draw down will also be available to them for periods when their AMRF investments make losses or returns of less than 4% of the value of their AMRF assets and where, under the previous arrangement, they would not have been able to make a draw down or a drawdown of a lesser value than will now be permitted.

I have no plans at this time for further changes to the legislation dealing with AMRFs.

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