The Government published Finance
Bill 2013 on 13th February 2013.
In the area of pensions, the
Government introduces new thresholds to the regime for ARFs and vested PRSAs.
The measures are significant because they contravene previously introduced
efforts at securing pensioners’ retirement income in old age. The new thresholds, which had not been
flagged by the Minister in his Budget speech in December, means that the thresholds
which applied to ARFs pre-Finance Act 2011 will now see a comeback.
Since Finance Act 2011, members
of Occupational Pension Schemes and contributors to Personal Pensions and PRSAs
who have an annual pension income of €18,000 can take the entirety of their
pension benefits into an ARF. Those who
do not have sufficient pension income must first set aside pension benefits to
the value of €119,800 in an AMRF - or buy an annuity for that amount. The AMRF
has to be kept until age 75, or until such times as the pensioner becomes
entitled to an annual pension income of €18,000 (whichever is the earlier).
However, from the passing of the
Finance Act, the requirement of a €18,000 pension income will be reduced to
€12,700. This means that recipients of the Old Age Pension (currently around
€12,000) who have very limited additional pension income, no longer have to put
money aside for very old age. Accordingly, Finance Act 2013 effectively marks
the beginning of the end for the prudence of thinking which infused the AMRF
concept.
Furthermore, from the date of the
passing of the Finance Act, the max value of the AMRF will be reduced from
€119,800 to €63,500. But it is perhaps
more precise to say that the value of ARFs will be increased by the difference,
namely €56,300. This is significant because ARFs are subject to imputed
distributions which, in turn, are subject to income tax - while AMRFs are not. So,
bigger ARFs, bigger income for the Exchequer. While there can be no other
reason for decreasing the value of the AMRF other than to improve the tax take
for the Exchequer, the measure is, seen in isolation, perhaps of little importance as the AMRF
regime is on the way out – as already argued.
Another measure, one which was
flagged in the Budget, is the access to AVCs prior to retirement in certain
circumstances. An individual who has
made AVCs can make a once-off withdrawal of up to 30% of the value of their
AVCs prior to reaching retirement. This
is restricted to AVC funds. Access to other types of pension arrangements, such
as personal pensions, is not available.
The access to AVCs will be available for a period of 3 years from the
passing of the Finance Act 2013.
Funds withdrawn in this manner
will be subject to income tax at 41% but will be exempt from USC and PRSI. If an individual can provide a certificate of
tax credits or evidence that they are subject to income tax at the 20% rate,
the tax payable may be less than 41%.
While this would appear to be a
welcome measure at first glance, on reflection it could once again signal the
government’s shift to short-sighted policies to increase the short term tax
take from pension funds. As with the
changes to the AMRF regime, allowing early access to AVCs only serves to reduce
the benefits available to fund an individual’s retirement which may once again
leave them dependant on the State later in life.
