New figures obtained by Fianna Fáil spokesperson on Finance Michael McGrath TD reveal that the scheme introduced in Budget 2013 to give employees the option of early draw down of Additional Voluntary Contributions they have made to their pension scheme has fallen well short of expectations.
At the time of its introduction, the Minister for Finance predicted it would yield €100m in additional tax revenue in the first year and a total of €200m over 3 years. In reality, only €26m in tax was paid in 2013 and €11m up to September 2014. A total of 12,104 people have availed of the option over the last two years, drawing down a total of €94m from the pension savings. Individuals are allowed a once-off option to withdraw up to 30% of the value of funded Additional Voluntary Contributions made to supplement retirement benefits. Withdrawals are liable to tax at an individual’s marginal rate.
Deputy McGrath commented, “After four years the Government has not developed a co-ordinated pension’s policy which reflects the changed nature of the workplace. Few, if any employees expect to be with the same employer for 40 years anymore and there is a need to reflect this by providing for more flexible pension arrangements. A more dynamic pension and savings system would take account of other major life events that people have to deal with financially such as redundancy, critical illness, house purchase or dealing with debt issues.
“This concept has worked successfully in other countries and can actually result in more people saving for their future as they do not see it as locking money up for decades with no chance of accessing it should they need to do so. The low take-up of the early access option is not surprising given the restrictive nature of the scheme. Employer paid contributions, regular employee contributions, self-employed personal pensions and normal Personal Retirement Savings Account (PRSA) contributions were all excluded from the scheme by the government.
“The Pension Levy, high management charges and volatile markets have discouraged people from saving for their future through a pension scheme and have all contributed to considerable damage to being done to the pensions industry. The Government should now look again at how pensions can be made more reflective of the modern working environment” concluded Deputy McGrath.