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Dáil Reply on Budget Pension Measures shows Government taking €130m less from high end pensions

 

DÁIL QUESTION

 

NO  158, 161 and 162


To ask the Minister for Finance the measures he is targeting in 2014 to give effect to the commitment in the Programme for Government to cap taxpayers’ subsidies for pension schemes which deliver pension income of more than €60,000; the total saving that will be made in 2014 in implementing this policy with a breakdown of the saving for each measure; the way these measures will be implemented in respect of new and existing pension contributors and to those contributors in compulsory pension schemes where they have already accrued a guaranteed pension in excess of €60,000..

– Róisín Shortall.

*    For WRITTEN answer on Tuesday, 22nd October, 2013.

Ref No: 44737/13

To ask the Minister for Finance if he will provide an estimate of the yield in 2014 and in a full year of the measures announced in Budget 2014 in respect of pension contributions, pension pot size and so on with a breakdown for each measure..

– Róisín Shortall.

*    For WRITTEN answer on Tuesday, 22nd October, 2013.

Ref No: 44788/13

To ask the Minister for Finance the revenue that will be raised from changes to the standard fund threshold and the change from the current single valuation factor of 20 used to value defined benefit pension entitlements to a range of higher factors the multiplies applied to defined benefit pension payments; and if he will make a statement on the matter.

– Michael McGrath.

*    For WRITTEN answer on Tuesday, 22nd October, 2013.

Ref No: 44827/13

REPLY

Minister for Finance ( Mr Noonan) :

I propose to respond to questions 158, 161 and 162 together as they all relate to the same issue.

As I announced in my Budget 2014 speech last week, the changes I am introducing to deliver on the commitment I made in Budget 2013 in the supplementary pensions area involve a reduction from 1 January 2014 in the value of the maximum allowable pension fund at retirement for tax purposes (the Standard Fund Threshold – SFT) from €2.3 million to €2 million and an increase  from the current single factor of 20 used to value Defined Benefit pensions for SFT purposes to a range of higher factors varying with the age at which the pension is drawn down. This latter change will place a higher capital value for SFT purposes on Defined Benefit pension entitlements accrued after 1 January 2014 and drawn down at retirement. The use of a range of capitalisation factors will improve the equity of the SFT regime as between Defined Contribution and Defined Benefit pension arrangements and between those retiring at earlier ages and those retiring at older ages.

The yield from the changes being made to the SFT regime is estimated at €120 million in 2014 and in a full year. It is not possible to differentiate the estimated yield between the impact of the reduced SFT and the change to the valuation factors.

In line with legal advices, the changes to the SFT and the use of higher valuation factors will apply prospectively from 1 January 2014. Members of pension schemes and individuals with pension savings whose pension entitlements or savings have a value on 1 January 2014 above the reduced SFT of €2 million and up to the value of the current SFT of €2.3 million may (as on the occasions when the SFT was first introduced and subsequently reduced) protect the capital value of those rights by submitting a claim for a Personal Fund Threshold (PFT) to the Revenue Commissioners. Revised arrangements for making a PFT notification to Revenue are being provided for in the forthcoming Finance Bill. Pension rights arising under Defined Benefit arrangements have to be valued on 1 January 2014 for PFT purposes using the current standard valuation factor of 20. In the case of rights arising under Defined Contribution arrangements, the capital value for PFT purposes remains, as before, the value of the assets in the arrangement that represent the member’s accumulated rights on that date i.e. the value of the fund on that date.

The valuation factor to be used for establishing the capital value of an individual’s Defined Benefit pension rights at the point of retirement, where this takes place after 1 January 2014, is being changed from the current standard factor of 20 to a higher age–related factor that will vary with the individual’s age at the point at which the pension rights are drawn down. The age–related factors are set out in a table on page B.24 of the Budget booklet and range from 37 for Defined Benefit pension rights drawn down at age 50 or under, to a factor of 22 where they are drawn down at age 70 or over.

Full details of the changes being introduced will be included in the Finance Bill which is being published on 24 October.