Written answers

Tuesday, 18 October 2016

Department of Finance

Pension Provisions

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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200. To ask the Minister for Finance if he has given consideration to a suggestion in terms of pension access (details supplied); and if he will make a statement on the matter. [30880/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The State encourages individuals to save for their retirement by providing generous tax incentives for them to invest some of their earned income in Revenue approved pension saving arrangements. The incentives include exemptions from income tax on pension contributions up to certain limits and exemption from various taxes in respect of pension fund growth. Benefits drawn down at retirement are, in turn, subject to tax at the individual's marginal tax rate, with the exception of the permissible tax-free retirement lump sum.

The details supplied with the question would suggest that the issue being raised relates to small self-administered pension schemes (SSASs) and the capacity of such schemes to invest in investment properties associated with the scheme member.

I am advised by Revenue that SSASs are a particular type of occupational pension scheme in respect of which special requirements apply in relation to their approval, operation and supervision. The reason for these requirements is to ensure that such schemes are established for the bona fide purpose of providing retirement benefits. The concern in this regard reflects the fact that, as such schemes are generally one member schemes, that member typically being a proprietary director, there is potential for a conflict of interest to arise. This is because the individual is not only the sole member of the scheme but is also normally the owner of the company sponsoring the scheme and a trustee of the scheme.

While property investment is permitted by such funds, purchases and disposals must in all cases be at arm's length from the scheme, the member, the sponsoring company, its directors and any associated companies.

The proposal being put forward in the question would effectively require these property related restrictions to be relaxed, so that a member of a small self-administered pension scheme could sell an investment property to his or her scheme or to use part of the scheme assets to invest in property associated with the member.

While I can appreciate the reasoning behind this proposal, I think it is important not to lose sight of the purpose of supplementary pension saving and the generous tax incentives, already mentioned, that the State continues to provide to encourage it. The sole purpose of pension savings is to provide relevant benefits to the scheme member at the point of retirement or, indeed, earlier in the event of retirement on ill-health grounds. The investment opportunities envisaged under the proposal might not represent a prudent investment in many cases and could put the availability of those benefits when needed at undue risk. In addition, investment in a single asset class, as recent history would demonstrate, is rarely if ever a prudent course of action.

While I appreciate that the proposal is well intentioned, it would seem to me to be difficult, if the rules governing investment by SSASs were relaxed in the manner suggested, to resist calls for a broader relaxation to allow, for example, assets such as family or holiday homes to be acquired by a pension scheme or to permit investment in the employing company to stave off short term cash flow difficulties. In other words, it could be a first step towards a dismantling of the very rules that are in place to protect an individual's pension savings.

For all these reasons I would not be in favour of this proposal.

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