Low take-up of pension AVC offer expected amid warnings
Published 23/02/2013 | 04:00
SMALL numbers of people are expected to take up the option of releasing funds from their pensions under a new relaxation of the rules, experts said.
People who have made additional voluntary contributions (AVCs) to their pensions will be able to withdraw up to 30pc of the value of the fund.
The withdrawals will be taxed at the individual's marginal rate of tax and the scheme will apply for three years from the passing of the Finance Bill this month.
There will be no universal social charge and no Pay Related Social Insurance charged on the money withdrawn.
However, head of the Irish Association of Pension Funds Jerry Moriarty said he expected a low take-up of the new offer.
He said an estimated €5.7bn was invested in AVCs.
The fact that people would only be allowed to get 30pc of an AVC fund and would be taxed at 41pc would be a big disincentive. The scheme is restrictive as it excludes personal retirement savings accounts (PRSAs), employer-paid contributions, regular employee contributions and self-employed personal pensions.
Calls for the measure from business bodies, TDs and senators had focused on allowing business owners to get access to pension funds to support their enterprises.
Pensions expert at consultancy Deloitte, Patrick Cosgrave, said the AVC release would only make sense in cases where someone's income had dropped dramatically, or where they had exceeded tax-free pension fund limits.
And one financial adviser has warned people with money in AVCs to ignore the offer put in place by Finance Minister Michael Noonan.
Bob Quinn of MoneyAdviser.ie in Kildare said: "Mr Noonan gave you a break in the Budget, but ignore him.
"It may seem tempting to clear off some debts or give yourself some breathing space by raiding this fund, but remember what it's for.
"You put it in place because you felt that your regular pension contributions were not going to be sufficient to see you and your dependents through your retirement," he said.
People who cash out up to 30pc of their AVC would be seriously depleting not only the value of the fund but also its earning potential, he added.
There was a big risk that people heavily in debt would have any money released from an AVC jumped on by their lender to pay off the borrowings, Mr Quinn said.